Term Life Insurance Articles
Is There Such A Thing As Too Much Term Life Insurance Coverage
2010-02-03
Deciding on what type of life insurance to get can be difficult, but perhaps even more difficult is deciding on an amount of term life insurance coverage. More coverage drives up the cost of a term life insurance policy, but many buyers think in terms of the money that they'll leave behind and opt for as much as they can possibly afford. However, this might not be a great strategy. There is such a thing as too much life insurance coverage, and deciding on a reasonable amount is crucial to developing a secure policy that operates effectively.
First, consider the point of a term life insurance policy. Most consumers use policies to protect their families (or in some cases, to obtain loans) in the event of their deaths in order to handle funeral expenses, hospital bills, and living expenses. If a family "breadwinner" is buying the policy, and the family has no other source of income, a high amount of coverage can be extremely helpful. However, while term life insurance should be used to provide financial comfort, it shouldn't be used to provide wealth. Too much coverage isn't security; it's more like a lottery win for the beneficiaries. Although the point is arguable, most policy buyers don't want this for their families. Besides, at extremely high levels of coverage, premiums will get outlandish, and the money spent on term life insurance could be better used in more investment-oriented ways, such as a whole life insurance policy or a retirement plan.
You should also remember that except in special cases, there's no return on the premiums of a term life policy. Buyers don't get any money back at the end of a term, and if too much coverage was selected, then the money spent on the plan is wasted. Some buyers offset the cost of higher coverage with a short term. However, this is an especially risky strategy since the smaller the term, the less likely a payout becomes. If your budget for a term life insurance policy is fairly high, consider getting a longer term rather than doubling or tripling the amount of coverage that you actually need.
Term life insurance is a great buy, and one of the great benefits of term policies is their affordability. Buying too much coverage can offset this benefit. However, by taking into account the needs of your family, you can design an inexpensive yet powerful source of security for your beneficiaries' future. Consider every factor when looking at term life insurance quotes, and you'll end up buying a much more responsible term policy.
