4 Life Insurance Tips From Suze Orman During Life Insurance Awareness Month

It pays to take her advice to heart.

Although we're nearly at the end of September, it's not too late to acknowledge that it's Life Insurance Awareness Month. The purpose of Life Insurance Awareness Month is to educate consumers on the importance of putting life insurance into place. But there's also a fair amount of misinformation circulating about life insurance. So if you're in the dark about it, it pays to follow these tips from financial guru Suze Orman.

1. You don't need to be rich to need life insurance

It's a big myth that average or low earners don't need life insurance because they don't have a lot of income to replace. Orman says, "If there is anyone in your life who relies on your income, you need life insurance."

In other words, don't get caught up in the amount of money you bring home. If your family relies on your $30,000 annual salary, you'll want a means of replacing that salary for them if you pass away unexpectedly.

2. Term life insurance is generally your better bet

Life insurance can generally be broken down into term versus whole. With term life insurance, you're covered for a specified period of time. With whole life insurance, you're covered for the rest of your life.

Plus, with whole life insurance, your policy accumulates a cash value over time that you can access in different ways. If you reach the end of your coverage with term life insurance and don't pass away, there's no payout.

At first glance, whole life insurance might seem like the better deal. But one thing you should know is that whole life insurance can cost way more than term life insurance, making it unaffordable for a lot of people. And that alone is a good reason to opt for term life insurance instead.

3. You don't necessarily need 30 years of coverage

Some people who buy term life insurance opt for 30 years of coverage. But you don't necessarily need to pay for a policy that long.

Let's imagine you decide to get life insurance at age 45, at which point your sole child is five years old. You may want a means of covering your child through adulthood. But in that case, a 20-year policy might suffice. If you also have a spouse you want to cover who's the same age as you, a 20-year policy would give your partner protection until their 65th birthday, at which point they're eligible for benefits from Social Security.

4. You don't want to overbuy life insurance

Some people opt out of life insurance because they feel they can't afford it. But if you want to keep your costs down, don't overdo it as far as your policy's death benefit is concerned, says Orman.

"The wise way to find out how much life insurance you need to purchase is to add up the annual living costs for your dependents, or your annual contribution to them, and then purchase a policy that is 25 times that sum," she says. "For example, if your dependents need $50,000 a year to cover their living expenses, I am asking you to buy a $1,250,000 life insurance policy -- that is, a policy with a $1,250,000 death benefit."

Putting life insurance in place is an important step to take on the road to protecting your loved ones. If you're not sure how life insurance works, take some time to educate yourself so you can approach your decision with more confidence.