Life insurance is a really smart purchase, and a crucial one, if you have a family that you need to protect. However, not everyone really needs coverage from a life insurance policy; or, you may outgrow the coverage that you once needed. The result of this can end up costing in money that you don’t need to spend.
If you are looking to scale back on your expenses, your life insurance policy may be a good place to start. How can you tell if you are paying too much for your coverage? Here are some good ways to tell.
You only need term coverage, but you have whole life
Permanent life insurance is rather costly. A 30-year-old man could end up paying 10 times more every month for a $500,000 whole life insurance policy than he would pay for the same amount of term life insurance coverage. Also, permanent life insurance coverage is really only necessary for certain people. For example, you may want to have a whole life policy if you:
- Your net worth is very high. Permanent life insurance can assist your heirs with paying taxes on your estate if it is valued at more than $5.43 million, which is the estate tax threshold that is
set by the IRS.
- You have someone who will always be dependent on you. For example, if you have a handicapped child who will rely on you financially for the rest of his life, whole life insurance could help protect him.
- You own a business. If you have business partners, permanent life insurance can give them the option to buy out their share of a business, or handle other transitional expenses.
- You have expenses or income replacement needs that will be long-lasting. For example, if you have a mortgage or another large debt that will last longer than a term life insurance policy, or you are working past the age of retirement, permanent life insurance may be a good option for you.
If, however, none of these things apply to you, then permanent life insurance really isn’t a necessity. It’s a cost that you really can do without and can reduce by switching over to a term insurance policy.
You have life insurance, but you really don’t need it
Typically, it’s a good idea to have life insurance coverage if you have income that needs to be replaced in the event that you pass away, or you have another pressing financial requirement; your mortgage and college education for your children. However, if you don’t have a job, a family, or any other major debt, like a mortgage, chances are that you don’t need life insurance just yet.
Additionally, if your children support themselves, you’ve paid off your mortgage, and you don’t have any other pressing financial obligations, you probably don’t need life insurance coverage anymore (unless you want to pass your heirs money). You should also make sure that you have enough assets, or insurance, to cover a funeral however morbid this is to think about.
The rates for life insurance increase as you get older, or if you start to develop health problems. With that said, if you are just starting your first job, or you are renting your home, chances are that you don’t need to have a life insurance policy just yet. And, unless there is a real need for a permanent policy, you can drop your life insurance once you have retired.
Your insurance riders are outdated
Riders can be very handy for customizing your life insurance policy. For instance, if you have a guaranteed insurability rider, you will be able to purchase new coverage in the future, no matter what your age or health is.
A term conversion rider is also helpful because it allows you to turn your term insurance policy into permanent coverage later on.
While these riders are excellent if you need them, if you don’t, you could be paying too much.
Reducing the Cost
If you find that you are paying too much for your life insurance policy, you will be happy to know that there are ways that you can cut the cost.
Here are some tips that will allow you to minimize the amount you pay for your life insurance, which could really save you a bundle:
Before you purchase your life insurance policy, you should always shop around; however, if you already have a policy, that doesn’t mean you can’t shop around.
Do some research online and talk to other agents with other firms. If you find a better price for the same coverage – and you need that coverage – you can certainly change your policy.
Talk to Your Agent
If you are happy with your current agency, talk to an agent about ways that you can reduce the amount you are spending. Your agent will be able to discuss the intricacies of your policy and help you determine if there are certain things that you don’t need on your policy. Your agent can help make adjustments that will reduce the cost of your policy.
It may seem like the more coverage you have, the better; however, that is not always the case. Should something happen to you, you certainly want to make sure that your family is protected; but, you don’t have to have a policy that will give them the equivalent to a lottery jackpot in the event of your passing.
Determine exactly how much your loved ones will need in the event of your passing and take out a policy that provides them with the amount that they need. Over-insuring yourself could mean you are spending too much on your coverage every month.
Choose the Right Kind of Coverage
There are several different types of insurance policies available, and each one has a different price tag. Whole life insurance is more expensive than term, and in many cases, it’s not necessary. If you don’t need to have whole life insurance, there is no need to pay the high price. Make sure that the coverage you choose is really the coverage you need.
Search for Guaranteed Premiums
Typically, you will be offered a guaranteed or a renewable premium payment for your life insurance. Renewable premiums are usually cheaper in the beginning, but they can increase over time, especially as you age or develop health problems. This could mean that you will end up spending more than you would on a guaranteed premium. A guaranteed premium guarantees that the premium will never change over the entire length of your policy.
Reduce Your Coverage
Every year, reduce your coverage. The amount of coverage that you have when you first take out a life insurance policy, when your kids are young and you still have a mortgage to pay off, likely won’t be necessary as your children age and become self-dependant and you pay off your mortgage.
Each year, reduce your coverage to accommodate your specific needs. The less coverage you have, the less you will end up paying for your policy.
A healthier lifestyle means lower premiums. If you smoke, quit. If you are overweight, go on a diet and exercise. If you participate in daring activities (sky diving and bungee jumping, for example) on a regular basis, cut these activities back.
The healthier your lifestyle, the less of a risk you are to your insurance provider. When you are less of a risk, you have to pay less for your premiums. It just makes sense. If you are exceptionally unhealthy, you may need to apply for a no medical exam policy. Even then, you will need to make certain warrants about your health, and if you lie, the insurance company won’t pay.
Think About Joint Coverage
If you are married, consider getting a joint policy with your spouse. A joint policy will likely be less expensive and more convenient for you to arrange than two separate policies. However, do keep in mind that it will only pay out once. This means that you may not have anything left to give your dependents if something happens to you after your spouse passes.