Dave Ramsey says these are the biggest life insurance mistakes you can make
You will want to avoid them at all costs.
- Financial expert Dave Ramsey thinks life insurance is a smart thing for a lot of people.
- It also warns that some types of coverage aren’t worth your money.
You may be the main breadwinner in your family, and your spouse and children depend on you for their income. Or maybe you’re a caregiver for your aging parents who would need expensive home care if anything were to happen to you.
If there are people in your life who depend on you financially, it’s a good idea to get life insurance. But if you want to take that step, the last thing you want to do is throw your money away or leave your family without enough coverage.
To that end, financial expert Dave Ramsey has some key tips on buying life insurance. Here are some mistakes he wants people to avoid at all costs.
1. Not carrying enough insurance
It can be difficult to calculate the amount of insurance you need, and to be clear, there is no fixed formula. Some people like to replace a certain amount of income and leave their beneficiaries with enough money to pay off joint debts, such as a mortgage. But there are other formulas you can use to determine how much coverage you need.
No matter what number you land on, don’t leave your loved ones with too modest an edge. If you do, your policy won’t really achieve the goal of providing them with financial protection.
Ramsey suggests getting coverage to replace at least 10 to 12 times your income. However, you may want to add to this to cover things like paying for your children’s education.
2. Buy whole life insurance
Whole life insurance accumulates cash value, unlike term life insurance. A whole life insurance policy will also cover you for the rest of your life, while a term life insurance policy will only provide coverage for a limited period of time.
Despite this, Ramsey thinks whole life insurance is a bad idea for one big reason: cost. Whole life insurance can be prohibitively expensive, costing double or triple what a term life insurance policy costs (or more). And while it’s true that you get cash value, the reality is that if you’re looking for a way to grow your family, opening a brokerage account and investing your extra money is probably better and more expensive. -efficient way to do it.
3. Getting too short a life insurance policy
Ramsey advocates term life insurance, but he cautions against buying a policy with too short a term — say, only getting 10 years of coverage. If you have young children, for example, a 20-year policy is probably more appropriate. And if you want to make sure your spouse is covered until they can file for Social Security, you can choose a 30-year term.
Remember, you might think you’re making a smart move by buying a 10-year term life insurance policy and then buying a new policy once it runs out. But at this point, it may be harder to get coverage, or at an affordable rate, if you’re older and have more health issues. And so Ramsey suggests setting up your family with adequate coverage from the start.
Purchasing life insurance is a wise decision when you have people in your life who may be hurt financially in the event of an untimely death. Just make sure to avoid these mistakes along the way.
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