When it comes to life insurance, being under-insured or over-insured isn’t a smart plan. Ask a skilled broker to help you choose wisely.
When about to choose life insurance, most people get stuck when it comes to how much coverage they need versus what they want. Those two things may be entirely different. This is one of the reasons you’d want to talk to an expert life insurance agent who could tell you what you needed to know by discussing your goals and lifestyle with you.
Being under-insured isn’t a wise idea and being over-insured won’t do you any good either. The whole key to a perfect balance in buying life insurance is having “enough” coverage to save you money in the end. Of course the question is then, “How much is enough?” When figuring that out, use a balanced blend of coverage and premium factors that both carry equivalent weight.
Granted there are usually some assertions that insurance agents will give you, like the suggestion that you consider buying ten times your annual salary. It’s not a bad idea, but it really doesn’t get you out of buying life insurance at regular intervals, nor does it prevent over or under insuring yourself. What would save you money in the short term would be to only buy what you need at any given time. That however has the effect of raising your aggregate premiums and lowering your returns. This is particular true if you are looking at cash value plans.
Here is a good tip when you assess your insurance needs: use your living expenses and not your income. That will be what your beneficiaries will need to live on. Your family may not need 100% of the household income to get on with their lives. So when you do an income calculation, use a percentage of your income to get a reasonable coverage figure.
And what do you buy then? Despite your calculations or wishes, you may find yourself buying insurance you can afford, which isn’t the same thing as what you may need. This is something you need to discuss with your life insurance agent, who has access to a wide variety of life insurance products that may just suit your requirements perfectly. You don’t want to compromise your overall financial plan by buying too much when you can least afford it.
Keep in mind that the amount of coverage you need will likely change over time and the “right” amount of coverage is what is right for “you” when you need it. The general rule of thumb is that you should anticipate, as best you can, your future needs (e.g., mortgage, new baby) without overdoing it. When in doubt, consult with a life insurance expert.