"Too frequently people go into this half cocked with numbers they literally pull out of the sky," says Roniger. "Taking a simple multiple of your current earnings is so nonspecific, it doesn't add up."
He urges clients to rely on a capital assessment to determine coverage need.
"I typically tell people during the accumulation phase of their financial life that now is the time you can start cutting back on life insurance. Instead, build up your capacity to self-insure. Otherwise, here I am five years down the road with pay raises, and I'm still using a multiplier of four times whatever my income is. I'm basically buying more life insurance than I need."
For a gut check, ask yourself Udell's favorite question: "If I wrote you a check today for the amount on your insurance policy, would you work for me for the rest of your life at no pay?"
Next, is the price you pay reasonable? Insurance companies use life expectancy tables and risk classes to determine rates, then factor in underwriting costs. They consider mortality rates over time, so isolated events, such as the Sept. 11 attacks, don't significantly impact rates.
Today, Internet speed means companies compete on rates by the minute, so overall life insurance rates have plummeted nearly 60 percent from their costs just seven years ago, Udell reports. Yet a 40-year-old in good health seeking a 20-year term policy can find quotes ranging from $27 to $189.
"The middle of the pack is almost double what you need to be paying, and believe me, plenty of companies in this level sell tons of life insurance," Udell says.
However, a few extra bucks for an A-plus-rated firm makes sense, agents say. Niceties like convertibility and quick claims processing stack up, too. In other words, cheapest isn't the only consideration.
"Anything within $30 to $50 annually isn't worth the savings to deal with a crappy company," Udell says.
"People often say, 'When I buy life insurance I'm betting against myself.' That's the worst expression I've ever heard," Evans says. "When you purchase insurance, you're betting you'll live but providing an assurance in case you're wrong."