Don’t pay more than is necessary for life insurance protection.
- It’s important to buy life insurance, but it’s not a good idea to overpay for it.
- There are some signs that an insured may be overpaying for coverage.
- Whole life policies are more expensive than term life, and if the death benefit is higher than necessary, the policy may be too expensive.
Buying life insurance is a good investment because a policy can protect family members from financial devastation. With the proper life insurance coverage, a death benefit is available that will ensure that surviving loved ones do not experience financial hardship in the event of an untimely death.
However, after purchasing the coverage, the policyholder will have to pay the premiums for decades to come. And these premiums can add up, especially if the policyholder made decisions that unnecessarily made their coverage cost more. Here are some key signs that this could be the case, and that a policyholder may be paying more in premiums than necessary.
1. The policyholder did not search for life insurance
Not looking for life insurance is a mistake because the prices of the policies can vary greatly from one company to another, especially in situations where the policyholder smokes or has a medical problem, since different insurers value this type risk differently.
It can be difficult to correct the problem of not looking, because finding a cheaper insurer would mean changing policies and going through the entire application process again. But if the insurance was recently purchased without comparing and no health issues have changed, it may still be worth getting quotes to see if another life insurance provider could offer a similar policy for less.
2. The policy is a whole life policy
Whole life insurance costs significantly more than term life policies. And, for many people, they’re not really necessary.
Whole life policies keep coverage in effect indefinitely. Since life insurance is meant to provide protection when someone has loved ones based on their income or services, it no longer makes sense to have a policy when there are no other dependents. Since children grow up, mortgages are paid off, and people retire and stop earning income anyway, life insurance is usually only needed for a set period of time, not forever.
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Term life policies, unlike whole life policies, offer coverage for as long as the policyholder needs it, and the premiums can be much lower since the death benefit is not paid if the policyholder the policy does not die during the coverage period.
It can also be difficult to make a change in these circumstances, as it would mean switching from a whole life policy to a term life policy. But it may still be worth looking into to avoid decades of higher premiums.
3. The death benefit is higher than it needs to be
A death benefit should be enough to pay off debts; cover the costs of raising and educating children; and replace the income of the deceased for as long as necessary. It doesn’t need to be bigger than this, and a higher death benefit comes with higher premiums.
Policyholders who pay too much for a larger death benefit may consider reducing their coverage by calling their insurer. This is usually possible, but it’s important to find out each insurer’s rules about changing coverage.
4. The coverage period is longer than necessary
Finally, paying for a longer term of coverage also results in unnecessarily high premium costs, since insurers charge more the longer the policy is in force. If an insured’s income and services will no longer be needed in, say, 10 years, but a 30-year policy exists, those extra premiums can be wasteful.
In this situation, it is again a good idea to contact the insurer to explore options. Some may allow a change, which could make life insurance more affordable for years to come.
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