Life insurance is a purchase that most people make once or twice in a lifetime, so the stakes are high. The most common mistakes aren't complicated: buying too little, buying the wrong type, or missing a detail that matters when a claim is actually filed. Here are five things worth getting right.
Figure out the right coverage amount before you buy. The 10x income rule of thumb is a starting point, not a calculation. Your real number depends on your debts, how many people depend on your income, and how many years of replacement income they'd need. A quick run through a life insurance needs calculator or a conversation with an advisor gives you something more accurate than a round multiple.
Know the difference between term and permanent insurance. Term life covers you for a set period, usually 10, 20, or 30 years, and has the lowest premiums. Permanent insurance (whole life or universal life) covers you for life and builds cash value, but costs significantly more. For most families with a mortgage and young children, term is the right fit. Permanent insurance does have a role in estate planning and for business owners, but it's not the starting point for everyone.
Check who's standing behind the policy. Life insurance is a promise that might not be called in for 20 or 30 years. Look up the insurer's financial strength rating from AM Best, DBRS, or Standard & Poor's. An A rating or higher suggests the company will still be in solid shape when it matters.
Read the exclusions. Most policies don't cover suicide in the first two years or death connected to criminal activity. Some exclude specific hobbies or pre-existing conditions. Read that section before you sign, not after.
Name beneficiaries explicitly, not just 'my estate.' A named beneficiary means the death benefit bypasses probate, gets to your family faster, and is harder for creditors to reach. Revisit the designations after any major life change, a marriage, a divorce, a new child, or the death of someone you originally named.