Is it Possible to Have Too Much Insurance?

September 29, 2010

Having adequate insurance coverage for your life, health, home, and automobile is a sound part of any individual’s overall financial planning. But this insurance coverage isn’t free, of course. You pay premiums for each type of coverage you have, and you pay higher premiums in order to get more coverage.

At a certain point – especially if you have a change in your life or your family situation – you might find yourself paying premiums for coverage that is excessive, or no longer necessary. There are a number of different circumstances where it may be appropriate for you to reevaluate your insurance coverage. Here is some advice about what life events should trigger a re-evaluation of your insurance needs.

  • Change in Marital Status. After a divorce, or the death of a spouse, it is likely that you no longer need the same amount of life insurance coverage. Chances are that one of the main reasons you took out the policy in the first place was to protect your spouse, so if that need is no longer there, then you might not need the life insurance policy.
  • Children. Similarly, you likely do not need as much life insurance coverage after your children graduate college, or leave home, or are no longer dependent upon you for financial support. You might decide to keep the life insurance policy in order to provide the children with an inheritance, but you’ll want to weigh that against the cost of continuing to pay the policy premiums.
  • Retirement. One of the primary reasons that people buy life insurance is to be able to provide for their family in the event they die, and the family loses their income. Once you retire you no longer have the same income from your work, so there isn’t an income that needs to be protected by an insurance policy.
  • Medicare or Other Benefits. Depending on the coverage that you may start receiving from Medicare or some other insurance program, such as retirement health coverage from your employer, you might be able to reduce or eliminate other health coverages, and save yourself the cost of the premiums. You want to make sure that your health care costs are met, but paying for unnecessary coverage is simply a waste of your money.
  • Change in Driving Habits. If your driving habits change significantly (such as when you retire or change jobs and no longer have a long daily commute), you should immediately check the coverage on your automobile insurance. The premiums for most policies are based in part on the amount of driving you will do, so if you begin driving significantly less, then you may be a good candidate for reduced coverage. Similarly, if your children have left home and will no longer be driving your car on a regular basis, then you should be able to reduce the scope of your coverage and save yourself some money.
  • Even if none of these significant life-changing events have happened to you recently, it’s probably still worth taking a look at all of your insurance policies from time to time, to make sure that your insurance coverage fits your current needs, and that you aren’t paying higher premiums for coverage you don’t need.

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