of the hardest parts when
shopping for life
insurance is establishing how
much coverage to purchase. We're
talking about years into the future and
many unknowns. In fact, there's
only a few "knowns" and we have to put
our faith in these when considering the
amount of life insurance coverage.
Most people do not consider the
possibility (much to their later
chagrin) of over-insuring their life
needs. Let's investigate further
to avoid life over-insurance.
know...it's strange for a
broker to be warning you
against buying too much insurance.
Shouldn't I be offering you sorts of
plans, riders, and bells and whistles?
Well, no I shouldn't if I'm doing my
job. The goal is not to insure
against every possible scenario in the
aim of covering 100% of risk in a
person's potential future.
It's just way too expensive.
You'll be insured for the future but
unable to afford living life today!
It's always amazing to us how many
people are either over-insured or poorly
insured. If you have coverage in
effect right now, there's a good chance
you fit this bill. That's how
prevalent it is. So what is
first definition of over-insurance is
quite simply life insurance that you
can't afford. A large percentage
of life insurance policies lapse in the
first two years. That's basically
money thrown away and it sets you up for
much higher rates at a later date since
rates are based on age at the
time of enrollment. There's a big
difference between 35 and 40 years old.
You have to keep in mind that every
person and every family goes through
financial periods of downturn or change
during the long range. If your
budget is $100 right now, it might be
$50 during a rough patch. You can
go ahead and max out the $100 but you
don't want any budget items that stand
out for the ax during rough financial
times. Insurance in general
typically comes up during budget review
and it's tough not to consider cutting
it since the benefit and protection is
for the future (not the present).
Taking this into account, you want to
safely be able to afford the life
insurance premium with a little buffer
just in case. Every person has a
different threshold for what feels
Another type of over-insurance is just
expensive life insurance. This
means you are paying more per 1000
dollars of coverage than you should be.
There can be many reasons for this and
this makes up a good part of the people
we come across who are over-insured.
More precisely, they are poorly insured.
The most likely culprits are as follows.
First, they may have
insurance which is quite
expensive...usually 5 to 10 times more
expensive than term life. We go
into detail at our other articles such
life versus whole why it's
hard to make the numbers work.
Another reason is that you may have an
older policy. Even though you are
older now (and the rate is higher
comparing apples and apples) the average
cost of life insurance has dropped
significantly over the past decade.
instant term life
insurance quote to see if
this is the case. Finally, you may
just have a bad life insurance rate.
This can be the result of not being able
to compare multiple carriers and plans
or dealing with a captive agent...a life
insurance agent that only shows one
Finally, over-insurance for life can
just be having too much coverage.
Is that possible? Sure. If
you earn $50K per year you want 10 years
of term, $2M might be too much.
You can use our handy
term life planner
to give you a baseline amount of
coverage considering such factors as
current income and inflation. If
you're insuring double the amount given,
then you may be over-insuring depending
on other financial considerations and
debts that you owe. We're happy to
walk through your situation to make sure
you avoid the costly problem of