Are You Paying Too Much for Life Insurance?

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  • It's important to buy life insurance, but it's not a good idea to overpay for it.
  • There are some signs a policyholder may be overpaying for coverage.
  • Whole life policies are costlier than term life, and if the death benefit is larger than necessary, the policy may be too expensive.

Don't pay more than necessary for life insurance protection.

Buying life insurance is a good investment because a policy can protect family members from financial devastation. With the right life insurance coverage, a death benefit is available that will ensure surviving loved ones don't experience money troubles in the event of an untimely death.

After buying coverage, though, the policyholder will have to pay premiums for decades to come. And these premiums can add up -- especially if the policyholder made decisions that needlessly made their coverage cost more. Here are a few key signs that this could be the case, and that a policyholder may be paying more for premiums than necessary.

1. The policyholder didn't shop around for life insurance

Not shopping around for life insurance is a mistake because the prices of policies can vary a lot from one carrier to another -- especially in situations where the policyholder smokes or has a medical issue, since different insurers price these types of risks differently.

It can be difficult to correct the problem of not having shopped around, because finding a cheaper insurer would mean switching policies and going through the full application process again. But if the insurance was purchased pretty recently without shopping around and no health issues have changed, it may still be worth getting quotes to see if another life insurance provider could offer a similar policy for less.

2. The policy is a whole life policy

Whole life insurance costs significantly more than term life policies. And, for many people, they aren't really needed.

Whole life policies keep coverage in effect indefinitely. Since life insurance is meant to provide protection when someone has loved ones depending on their income or services, it no longer makes sense to have a policy in place when there are no further dependents. Since kids grow up, mortgages are paid off, and people retire and stop earning income anyway, usually life insurance is needed only for a set period of time -- not forever.

Term life policies, in contrast to whole life policies, offer coverage for the length of time a policyholder needs it and the premiums can be much lower since the death benefit isn't paid out if the policyholder doesn't die during the coverage term.

It can be difficult to make a change in these circumstances too, since it would mean switching from a whole life to a term life policy. But it may still be worth looking into to avoid decades of higher premiums.

3. The death benefit is larger than it needs to be

A death benefit should be enough to repay debts; cover the costs of raising and educating kids; and replace the deceased's income for as long as necessary. It doesn't need to be larger than this, and a bigger death benefit comes with higher premiums.

Policyholders paying too much for a larger death benefit may wish to look into reducing their coverage by calling their insurer. This is usually possible, but it's important to find out each insurer's rules on coverage modification.

4. The coverage term is longer than it needs to be

Finally, paying for a longer coverage term also results in unnecessarily high premium costs since insurers charge more the longer the policy is meant to be in effect. If a policyholder's income and services will no longer be needed in, say, 10 years but a 30-year policy is in place, those added premiums may be a waste.

In this situation, it's again a good idea to contact the insurer to explore options. Some may allow a change, which could make life insurance more affordable for years to come.

Our picks for best life insurance companies

Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.

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