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We all know that protection and preparation for unknown situations are critical, but what about having too much life insurance? A financial safety net to fall back on is significant to put into place for your family, but can the blanket be too big? Yes! It actually may be possible that you have too much coverage. You need enough coverage to protect your loved ones, be financially diligent and pay a monthly premium you can easily afford.
Do I have the right kind of coverage?
Generally, there are two main types of life insurance policies: Permanent and Term. Permanent or whole insurance lasts your entire life and builds cash value over time. Permanent insurance never expires as long as premiums are paid and can be a good fit for someone looking for a permanent insurance policy that they will have for their estate that can handle their funeral expenses. Term life insurance is more cost-effective insurance protecting your loved ones when they need you most as a source of income. These are moments when the mortgage is not paid in full yet, dependents are still young, or the retirement nest egg has not grown much. If you pass away during the agreed-upon timeframe, your beneficiaries will receive the death benefit payout. It is a wise option for most people because it is one of the most affordable plans in life insurance. However, since the coverage does expire, if needed, you would have to seek out a new policy which would become more expensive. You should weigh the options and ask yourself where you currently are in your life to determine what kind of coverage suits your best.
How To Know If You Have Too Much Life Insurance
The right coverage is essential and having the correct amount is important too. Think of yourself as a cash machine and the benefit as a warranty on that cash machine. It does not make sense to pay for a policy that provides more than you need. A policy should be affordable and well within your budget and provide protection that fits you. Overpaying for premium with a $3 million policy when you make only $63,000 a year does not make much sense. You should try and calculate the amount of earning power you have left, the number of years remaining you are planning to work and multiply it by your yearly income. The amount may be multiplied 20 times for some, and for others, multiplied 15 times. This number will provide a starting point of how much coverage you should get. You want the benefit to be enough to cover your needs and the needs of your loved ones when you are gone.
How much do I need?
In a perfect world, taking care of everything would be accomplished. A death benefit should provide enough security lifting the burden of hardship from your family. You want to be able to financially take care of your loved ones, even if you are no longer around to see them. The provisions can include enough to pay off large debts, take care of financial obligations, pay for children’s schooling, or even final expenses. When considering how long you’ll need coverage, you will want to consider how long of a time obligation you have. For example, if you have already paid off 15 years of your 30-year mortgage, a 15-year term policy may be appropriate for your needs. Another example would be if you have five years left to pay off your mortgage, but you have kids who need money for college. You should probably consider a 10-year term to be able to protect them in case of your death.
A needs analysis and a closer look at your expenses and goals can bring focus on how much coverage you need. A detailed and tailored plan with your life goals, dreams, and plans for the future can be an ideal solution for uncovering the right policy for you. Talk to one of our experts today and learn if you have too much coverage or require a little more.
Life Insurance Questions?
We hope that this information on too much life insurance is useful to you. You can also learn more about financial life stages here.
If you’d like to learn how we can help you plan your retirement, call Empower Brokerage at (888) 539-1633 to speak to one of our Life and Annuity experts or leave a comment down below.
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