Dave Ramsey’s advice could help consumers avoid mistakes they regret.
- Most people should buy life insurance, and getting the right coverage is important.
- Dave Ramsey warned of five big mistakes to avoid, including unnecessary additions.
Life insurance is something most people should buy, but it’s also something many people don’t know how to buy. The good news is that financial expert Dave Ramsey has some tips that could make the process of buying coverage easier.
In fact, Ramsey offered crucial tips to help consumers avoid five common mistakes when getting a life insurance policy. Here is what they are.
1. Buying too little life insurance
The first and most important mistake Ramsey warns against is buying a policy with an insufficient death benefit.
“You should always buy 10 to 12 times your income in life insurance,” Ramsey said. “Seriously. That little policy you can get at your workplace? That could be a year’s coverage – and that’s not going to be enough.”
Ramsey is absolutely right that buying too little coverage could spell disaster for surviving family members. But while buying a policy that provides 10 to 12 times the income is a common recommendation and a good way to estimate coverage, it can be inaccurate. It is better to use the DIME formula and buy enough insurance to:
- Reimburse your Ddebt
- Replace your Iincome for as long as your family needs it
- Reimburse your mmortgage
- Cover your children eeducation
Following this process can provide a more accurate estimate of the amount of coverage needed.
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2. Delaying buying a policy too long
Ramsey also cautioned against postponing buying insurance.
“If you wait too long to get life insurance, you leave your family vulnerable if something unexpected happens to you,” said the Ramsey Solutions blog reads. “Plus, term life insurance premiums typically increase with age, so buying as early as possible can save you money.”
On this one, Ramsey is spot on. Waiting to buy coverage could be a disaster if something happens before a policy is in place. Those who wait could also find themselves unable to obtain insurance if pre-existing conditions develop.
3. Not buying a policy that lasts long enough
Term life insurance is a better option than whole life insurance for most people because it can be cheaper than whole life insurance and most people don’t need permanent protection. But Ramsey cautions against choosing too short a coverage period.
“What if you buy a 10-year policy and you have medical issues that increase the cost of your next plan – or worse, cause you to not be covered at all? stage, choosing to save up front will end up costing you more in the long run,” Ramsey said.
He advises buying a blanket until the kids are grown, and that’s a good approach. It is also important to ensure that your spouse is no longer dependent on an income at the end of the period of cover.
4. Paying for unnecessary coverage supplements
Ramsey’s next warning is about buying too many runners. These are coverages that consumers can add to their standard life insurance policy. Some of them are worth it, but many are not.
“Common riders can include income replacement, waiver of premium, critical illness and accidental death,” Ramsey explained. “They’re designed to push our emotional buttons so we buy them out of fear. After all, don’t you want to know your family is covered if you die in an accident? Guess what – your term life insurance policy will gives you all the coverage you need, no matter how you die.”
For most people, this advice is excellent. Life insurance should protect against premature death and supplemental protections are generally unnecessary.
5. Failing to review regularly to ensure a policy is still a good fit
Finally, Ramsey said many people make the mistake of not checking to see if their coverage needs are still being met. He advises periodically reviewing coverage to ensure that an appropriate level of protection is still in place even if your life has changed.
All of these warnings are good, and consumers should listen to Ramsey to ensure they have the right life insurance coverage at a fair price.
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