Buying Life Insurance in 2023? Don't Make These 4 Mistakes

There are a few things to think about before you buy a policy.

If you were to pass away tomorrow, what would happen to the people who love and depend on you? If this thought keeps you up at night, you're definitely not alone. The good news is that life insurance is designed to allay these fears by supplying financial support to replace what you provide for your loved ones. If you don't have a life insurance policy at all, or are hoping to replace an existing policy this year, here are the mistakes to avoid along the way.

1. Waiting too long to get coverage

Unfortunately, no one stays young forever, and good health isn't guaranteed at any point in your life, but the odds do go up that you'll be diagnosed with a serious health condition as you get older. This is especially true by the time you reach your senior years, as the National Council on Aging notes that older Americans are disproportionately affected by chronic conditions. But you can safely assume your health will decline at least gradually as you get older.

As such, if someone is in their 20s or 30s right now and needs a life insurance policy (you may not need insurance, depending on your personal circumstances), they can expect to pay less for it than if they waited. The odds are good that if a person has children and is still fairly young themselves, their kids are also quite young and would have more to lose if they lost their parent in the short term. It's worth it to prioritize looking for the right coverage while it's possible to get a good deal on it.

2. Not calculating your needs

Buying a life insurance policy involves some planning as far as coverage needs are concerned. Many experts recommend purchasing a policy that will pay 10 to 12 times a person's annual income, which is a good rule of thumb. You might also consider the DIME formula, which considers how much you owe in debt, your income, mortgage loan payoff amount, and paying for education for your children. Policy seekers should take some time to figure out how much insurance they should actually buy before securing a policy. An insurance agent can help with this, too.

3. Getting only one quote

Just like so many financial considerations, the likelihood of being better served and getting a better deal is higher when shopping around for life insurance. If you've already considered your coverage needs before contacting insurers, it should be fairly painless to discuss them with a few different life insurance companies to see what kind of premiums you'd owe for the payout you want.

4. Buying a whole life policy

Finally, the last life insurance mistake to avoid is assuming you should get a whole life policy. These policies cover policy holders for their entire life, and have a cash value as an investment, meaning money can be taken out of them. As a result, the premiums will be much more expensive than a term life policy with a comparable payout. Term life policies cover policy holders for a set period of time, say 20 or 30 years. If someone gets such a policy right before having children, the policy will be in effect until they become adults.

Term life policies aren't an investment and gain no cash value. But they are more affordable than whole life policies. A term life policy is likely a better fit for most peoples' needs, as there are much better investment options out there than whole life insurance.

There are some potential pitfalls in buying life insurance, as you can see. But if you avoid the ones above, you'll be able to find the right policy for your needs -- one that you can afford and that gives you peace of mind.