One 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.

I know...it's strange for a life insurance 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 over-insurance?

The 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 life insurance 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 manageable.

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 whole life insurance which is quite expensive...usually 5 to 10 times more expensive than term life.  We go into detail at our other articles such as comparing term 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.  Run your 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 company. 

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 over-insurance.