Paying too much for life insurance can mean less money left for other things.
- Life insurance is an essential purchase for many people.
- Consumers do not want to pay more for life insurance than they need to.
- These signs could indicate that a policy is more expensive than it should be, including a higher death benefit than you really need.
The protection of good life insurance is invaluable. With the right coverage, policyholders can ensure their death doesn’t cause financial devastation to those left behind.
But while it’s important to have comprehensive coverage, it’s not a good idea to overpay for it. This is especially true as these guidelines were intended to remain in effect for decades. With long-term coverage, paying higher life insurance premiums could mean high ongoing costs.
It is difficult to say when life insurance is too expensive. But consumers should watch out for these three red flags, which may indicate their insurance coverage is costing more than it should.
1. You have a whole life plan
Life insurance is much more expensive than term life insurance. The premiums are often five to 15 times higher.
That big extra expense might be worth it when most people need lifetime insurance coverage — but they generally don’t. Insurance is designed to replace income, pay off debt and provide for family members. And at some point, most people stop earning income, pay off most of their debt, and run out of people to rely on for income, so they don’t need coverage anymore.
Term life insurance costs less and only provides coverage for a set number of years, so premiums are lower and coverage can end when no longer needed. That means term life insurance is probably a better choice for most people.
Also, some people justify paying more for life insurance because that type of insurance has an investment component and term insurance doesn’t. But the reality is, better returns can be found elsewhere, and that’s usually not a good reason to pay more for life insurance.
2. You have a higher death benefit than required
Life insurance costs are higher for people with larger death benefits. After all, insurers take on more risk by agreeing to pay out more money in the event of death.
While leaving a fortune to family members after an early death may seem like a nice idea, that is not the purpose of life insurance. Paying extra premiums to provide funds beyond what loved ones need to maintain their standard of living is just a waste of money.
3. They didn’t care about reporting
Finally, another important red flag is that life insurance coverage is unnecessarily expensive if the policy was purchased without a premium comparison.
There are big differences in costs from one insurer to another, and people who don’t shop around and compare all of their different policy options could sometimes find themselves paying significantly higher bills for coverage.
There’s no reason to overpay for insurance when it’s so easy to compare rates online. For this reason, most people should seek quotes from multiple insurers for a term life insurance policy that offers a reasonable level of death benefits.
This way, it’s possible to avoid overpaying for insurance coverage while still getting the crucial protection that could save surviving family members from a disaster.
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