The decision to purchase life insurance is one of the most important steps the average person can take to protect the financial future his or her family or future family.
Unfortunately, research indicates that the majority of people underestimate their true life insurance needs.
With a bit of planning and preparation, though, it’s possible to avoid these common errors and purchase a policy that provides long-term protection at a great price:
1. Inflation
By far the most common mistake many people make when trying to determine how much life insurance to buy is to forget about inflation. Using a modest inflation rate of 3% annually, the purchasing power of most policies will buy half its current value.
To fully protect against the ravages of inflation, experts suggest building in an additional layer of protection by doubling the estimated cost of living required later in life.
2. Family Growth
Young couples may have few resources and high expenses while raising children, so it’s essential to plan for future college expenses, day-care and even additions to the family.
The cost of college is one of those expenses that has outpaced than the rate of inflation, so it’s important to plan accordingly. Remember, life insurance is a long-term purchase, so plan for unforeseen circumstances early. To ensure that college-bound children have sufficient resources, estimate college tuition with a 5% to 10% inflation rate.
3. Medical and Nursing Care
Older couples often have the advantages of retirement plans and a lifetime of savings to fall back on, but that doesn’t mean they are without worries of their own.
The escalating cost of medical or skilled nursing care can leave a surviving spouse facing bankruptcy just when he or she needs help the most.
To ensure that elderly spouses have sufficient resources, estimate medical and skilled nursing care at an 8% to 12% inflation rate.