Is it likely that you have too much life insurance?
Life insurance is essential to your financial planning, helping protect your loved ones and dependents if you should pass away. However, you could have more than you need since unnecessary coverage is expensive, wasting money that could help you meet other financial goals.
Here is how you could end up with more life insurance than you need:
Getting a Larger than Necessary Death Benefit
Your life insurance aims to ensure your loved ones avoid financial hardship, especially if you pass away unexpectedly. Therefore, you want to ensure that your death benefit is significant enough to cover certain costs. These include funeral costs and ensuring your income remains intact to pay for the day-to-day expenses like the house mortgage, other debt, and tuition for your dependent children.
Enormous benefits are unnecessary unless you want to leave a legacy and can afford permanent life insurance payments. If your goal is to provide your family with their existing standard of living, work out how much they would need to maintain their current lifestyle and buy sufficient coverage. Therefore, remember that the more the death benefit, the higher the premiums.
Getting a Longer Term Than Required
Not everyone needs permanent life insurance. Term insurance provides coverage for a limited period, especially when you have dependents and are paying off debt.
For example, as a parent of young children, 30 years of life insurance would provide coverage until you pay for your home and your children are educated and independent. Then, once you retire, you will have your retirement savings for your expenses, even if you have a partner.
However, you could consider lifetime coverage if you have dependents, want to benefit from cash savings, or want to leave your family a tax-free legacy. Unfortunately, these policies cost more, have higher fees, and offer lower returns than most other investments.
By Considering Multiple Life Insurance
Multiple premiums can get complicated because you could forget to pay one or the other, causing the policy to lapse. However, a second policy can make sense if you purchased a term policy in your 20s for thirty years and feel that you need extra coverage to close any gaps in your 40s.
You may want to have one term life policy and one permanent life policy; in this case, it would make perfect sense to have multiple life insurance policies. In addition, you may need to consider the tax implications, so speak to a financial adviser.
Remember: Depending on your age and health, the second policy will have higher premiums than the first. You will also have to have a medical examination to qualify.
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Steps To Take Before Purchasing Life Insurance
Canada has a sophisticated life insurance market with several excellent products to meet your financial needs and goals. However, before purchasing life insurance, you should take the time to determine your insurance needs by doing a financial needs analysis.
You can choose between two life insurance policy types – permanent or term. Term life insurance is cheaper because it lapses after your agreed term and doesn’t accumulate cash value.
Permanent life insurance is more expensive because it does not expire until death and is part of your estate planning. Furthermore, the cash value of permanent life insurance gives you a retirement income to meet several needs.
When you set out how much life insurance you need, consider how much you still owe on your mortgage, how many dependents you have, and your annual income. In the insurance industry, a golden rule says that the amount of your life insurance should equal at least five to ten years of your annual income.
A trusted insurance agent can help you work out an amount, but always ensure they have your best interest at heart. On the other hand, Get Covered is an online insurance app that helps customers find the exact amount, provides quotes and recommends the best product for their life insurance needs.
Right Age to Buy Life Insurance
Most people leave life insurance until they have more commitments, making it extremely expensive. The younger you are, the lower the premiums. Your 20s are the ideal time to buy life insurance. Thanks to your being young and healthy, premiums are at their lowest.
Bottom Line
In conclusion, it is possible to have too much insurance if you buy coverage with a higher death benefit than necessary or longer than required. However, keeping life insurance costs down while providing your family with the applicable income is possible. So, do your research today and determine how much life insurance coverage your family needs. Life insurance is a necessary product almost for everyone with dependents. Therefore, plan well and purchase the right insurance product that fits your needs and budget. Do your research first and consult an expert insurance advisor to get covered correctly.
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Apluswealth Inc. built this software for one reason and one reason only, so Canadians can find the right coverage at affordable rates from a reliable life insurance company to protect their loved ones.
To avoid getting too much life insurance, we designed GetCovered to help you find the exact coverage amount, best life insurance rates, most reliable insurance companies and overall, the most fitting life insurance policy.
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