Did You Buy Too Much Life Insurance? What Now?

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Think you bought too much life insurance? LIMRA’s 2019 report shows that about 57 percent of Americans have life insurance. And 32 percent of those who have insurance only have group insurance, which is usually not enough. But what about your situation? Is the policy you purchased much more than you need?

How Much Insurance Is Too Much?

Several factors influence how much insurance you need.

  • Your annual income – If you’re active in the workforce and anticipate pay increases over the term of your insurance policy, account for projected increases in your calculation.
  • Additional income – Remember to include social security income, rental property, real estate, investments, and other funds that you’ll leave for your survivors.
  • Existing policies – If you have any existing policies, factor them in. Keep in mind that if you have a group policy through your employer, it might not be valid if you change employers. Depending on the circumstances, you may be able to convert the group policy to an individual one, but the premiums after you leave the business can be costly.
  • Current and anticipated expenses and debt – Loans, credit card debt, mortgage payments, medical bills, health insurance premiums, and other expenses–factored them into the amount of income you need to leave your survivors. Funeral and burial fees can cost up to $10,000, so include them in the equation.
    • Burial/final expenses
    • Caregiving for an aged or ill relative
    • Business purposes
    • Charitable gift
    • Estate taxes/liquidity
    • Family financial responsibility
    • Funds for college education
    • Income replacement
    • Pay off mortgage
    • Raising a child
    • Replace a policy
    • Supplement a group coverage plan
    • Tax advantages save/invest
    • Wealth transfer
  • Multiply the highest number—your expenses or income—by 10 to 15 – If you earn $60,000 each year—or if your family spends that amount—your life insurance policy should provide at least $600,000 for your family. Some families choose up to 15 times their income or expenses to cover unexpected events.

Did You Overdo It?

If possible, purchase enough insurance to replace your income and cover expenses for 10 to 15 years. If 10 to 15 times your expenses or income is about $800,000 and you purchased a $3,000,000 policy—or multiple policies that value that amount—you’ve probably bought too much life insurance.

Is It Too Late?

If you think you’ve bought too much life insurance, what can you do about it now? Talk to a trusted life insurance provider or investment advisor who can examine the terms of your plan and determine if you’re able to sell the portion you don’t need. You might be able to turn some of the cost of the premium into income.

Before you buy your next insurance policy, talk with an independent agent. You’ll receive personalized service and straightforward advice to plan for your loved ones’ future. Contact Hunt Insurance today.

Is Term Life Insurance a Waste of Money? 4 Ways to Tell If It’s Right for You

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Many people wonder if term life insurance is a waste of money because it’s active for a limited amount of time—or term. When the policy ends, if you still want coverage, you’ll need another one. So, what’s the point in making the purchase?

Why Choose Term Life Insurance?

Term life insurance isn’t a waste of money. Although it doesn’t accrue cash value, it’s an affordable option when you’re on a budget, need payments that generally stay the same, or need coverage for a limited period.

1. Consider the facts

  • According to LIMRA’s 2019 Insurance Barometer Report, 43 percent of Americans don’t have life insurance.
  • Term insurance is the most common type of insurance that consumers purchase. During the 2019 study period for the LIMRA report, 71 percent of purchasers chose term insurance.
  • A July 2019 mortality trends report published on the Center for Disease Control website indicates that between 2012 and 2017, U.S. death rates increased for all adults between ages 25-44 in all ethnicity and race groups.

2. It’s affordable

  • Term life insurance costs less than whole life insurance, which is active throughout your lifetime.
  • You can purchase life insurance for the years you need it most.
  • Some people purchase term life insurance policies in succession to match the demands of their budget vs. a single permanent policy.

3. Fixed payments

Level term life insurance policies have set payments that don’t increase during the term. When the policy ends, if you decide to purchase a new one, your age, declining health, or the length of the policy will affect the cost.

4. Weigh the financial advantages

If you don’t have adequate insurance, a term life insurance policy isn’t a waste of money. Consider some of the ways that the funds will help your beneficiary:

  • Business purposes
  • Charitable gift
  • Estate taxes/liquidity
  • Pay for burial expenses
  • Pay for college education
  • Pay off mortgage
  • Replace a policy
  • Supplement existing group coverage

What Are the Types of Term Life Insurance?

Three common types of term life insurance include level, renewable, and convertible.

Level

Level term life insurance is available from 10 to 30 years, in five-year increments:

  • 10
  • 15
  • 20
  • 25
  • 30

Renewable

Features of renewable term life insurance include:

  • Terms are offered in increments of one or five years
  • No need for a medical examination or evidence of the state of your health
  • Age-based premiums

Convertible

What should you know about convertible term life insurance?

  • Offers the ability to convert to a permanent policy
  • Conversion is available for a limited time
  • Premiums will increase if you convert to a permanent policy

Who Purchases Term Life Insurance?

There are plenty of people who don’t think that term life insurance is a waste of money. It appeals to people with varying backgrounds and circumstances, including:

  • Retirees who want coverage until retirement income is available
  • People who desire supplemental coverage to pay off a mortgage, provide college funds for surviving children, or provide additional income for a spouse
  • Young people who want to take advantage of lower premiums based on their age and good health
  • Anyone on a budget with limited funds for purchasing insurance

How Much Does Term Life Insurance Cost?

Several factors influence the cost of life insurance, including:

  • The amount of coverage required to care for the needs of your survivors
  • Your age and gender
  • Your health history
  • Your family health history
  • Your occupation
  • Your hobbies
  • Whether or not you smoke or use recreational drugs

You can ask for a free quote from multiple sources to compare your options and costs.

Contact Hunt Insurance of Raleigh-Durham, NC for a hassle-free quote.

Read about different types of term life insurance on our blog post, What Happens to Term Life Insurance at the End of the Term?