Paying more for life insurance can mean less money for other things.
- Life insurance is a major purchase for many people.
- Consumers do not want to pay more than necessary for life insurance.
- These signs can suggest that a policy is more expensive than it should be, including having a larger death benefit than you really need.
The protection that comes with a good life insurance policy is invaluable. With the right coverage, policyholders can ensure that their death will not cause financial devastation to surviving loved ones.
But while it’s important to have comprehensive coverage, it’s not a good idea to pay more for it. This is especially true since these policies must remain in place for decades. With long-term coverage, paying higher life insurance premiums can result in large ongoing costs.
It can be difficult to tell when a life insurance policy is too expensive. But consumers should be on the lookout for these three red flags that may suggest their insurance coverage is costing more than it should.
1. You have a plan for life
Whole life insurance policies are much more expensive than term life plans. Premiums are often five to 15 times higher.
That big extra expense might be worth it if most people needed lifetime insurance coverage — but they usually don’t. Insurance is intended to replace income, pay off debts and provide for dependents. And at some point, most people stop earning income, pay off most of what they owe, and people no longer rely on their earnings so they no longer need coverage.
Term life policies cost less and only offer coverage for a set number of years, so premiums are lower and coverage can end when it’s no longer needed. This means that a term life policy is probably the better choice for most people.
Some people also justify paying more for a whole life policy because this type of insurance has an investment component, whereas term life policies do not. But the reality is that better returns can be earned elsewhere, and that’s usually not a good reason to pay more for whole life coverage.
2. You have a larger death benefit than you need
Life insurance costs are higher for people with larger death benefits. After all, insurers take on more risk when they agree to pay out more money on death.
While it may seem like a nice idea to leave family members with wealth after an untimely death, that’s not the purpose of life insurance. Paying extra premiums to provide funds above and beyond what loved ones would need to maintain their standard of living is simply a waste of money.
3. You didn’t seek coverage
Finally, another major red flag that life insurance coverage is unnecessarily expensive is if the policy was purchased without comparing premiums.
There is a lot of variation in price from one insurer to another, and people who don’t shop around and compare all their different policy options can 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. That’s why most people should get quotes from multiple insurers for a term life policy that provides an appropriate amount of death benefits.
By doing this, it is possible to avoid overpaying for coverage while still getting the crucial protection that can save surviving family members from disaster.
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