3 Signs You’re Paying Too Much for Life Insurance

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The protection that comes from a good life insurance policy is invaluable. With the right coverage in place, policyholders can ensure their death does not cause financial devastation for surviving loved ones.

But while it’s essential to have comprehensive coverage, it’s not a good idea to overpay for it. That’s especially true since these policies should remain in effect for decades. With long-term coverage, paying higher life insurance premiums could come at a big ongoing cost.

It can be hard to tell when a life insurance policy is too expensive. But consumers should watch for these three red flags that may suggest their insurance coverage is costing more than it should.

1. You have a whole life plan

Whole life insurance policies are much more expensive than term life plans. Often, premiums are as much as five to 15 times higher.

This big added expense might be worth it if most people needed insurance coverage for life — but they generally don’t. Insurance is meant to replace income, repay debts, and provide for dependents. And at some point, most people stop earning income, pay off most of what they owe, and no longer have people relying on their earnings so they don’t need coverage any more.

Term life policies cost less and offer coverage only for a set number of years, so premiums are lower and coverage can end when it’s not needed any more. That means a term life policy is likely 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 and term life policies don’t. But the reality is, better returns can be earned elsewhere and this typically is not a good reason to pay more for whole life coverage.

2. You have a larger death benefit than needed

Life insurance costs are higher for people with larger death benefits. After all, insurers are taking on more risk when they agree to pay out more money upon a death.

While it may seem like a nice idea to leave family members with a fortune after an untimely death, this isn’t 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 just a waste of money.

3. You didn’t shop around for coverage

Finally, another major red flag that life insurance coverage is needlessly expensive is if the policy was purchased without comparing premiums.

There’s a lot of variation in cost 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 substantially 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 that, it’s possible to avoid overpaying for coverage while still getting the crucial protection that could save surviving family members from disaster.

The Ascent’s picks for best life insurance companies

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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