Coverage and Cost

How Much Life Insurance Do I Need?

How Long Should My Coverage Last?

How Much Does Life Insurance Cost?

Q

Is it possible to have too much life insurance?

A

Yes, you can be overinsured with more life insurance than you need. Learn how much life insurance you really need, and how to avoid excess coverage.

The best life insurance policy for you will provide enough coverage to keep your dependents financially supported in case you die. The death benefit should cover your income, assets, major debts, and future obligations – including the cost of education for your children, your spouse’s retirement, and your funeral expenses.

But your needs can change. For many people, major life events, such as a new baby or a mortgage,  warrant additional life insurance. But other life changes, such as a divorce or grown children, can mean that you no longer need as much life insurance as you initially purchased.

If you can still afford the premium and still need some amount of life insurance, there may be no need to make a change. But if your premiums are too high and you don’t need the coverage that goes with them, you have some options to lower your coverage amounts — and your premiums.

KEY TAKEAWAYS

  • You should recalculate your coverage needs after any major life event

  • Your life insurance death benefit should cover your salary, dependents, debts, and other expenses

  • Most insurers allow you to decrease your coverage after 1-3 years of owning the policy

How to adjust your life insurance coverage

For term life insurance and whole life insurance, the two most popular types of life insurance, you can generally elect to decrease your coverage amount at least one time during the life of the policy, which will reduce your premiums. Typically, insurers have restrictions for decreasing coverage, such as how long you need to own the policy and how the policy is worth. 

Standard operating procedure varies by insurer and product. Some insurance companies won’t let you change a policy until it’s been in force for a year; others make you wait three. And some don't guarantee they’ll approve a coverage decrease when you sign, but usually will depending on the circumstances

Decreasing term life insurance by company

See how the top term life insurance companies allow you to decrease coverage based on how long you’ve held the policy and how much coverage you own. For all of the companies below, the decrease is priced using your age when you were first insured, which means you won’t be subject to higher premiums due to age or new health issues

Company name                                                                                             Can you decrease your policy's face amount once in force?Restrictions                                                      Product minimum                   
AIG                                          Yes                                                      Not specified                                                     $100k                             
Banner Life (Legal & General America)Yes                                                      After 1 year                                                      $100k                             
Brighthouse                          Yes                                                      After 1 year                                                      $100k                             
Lincoln Financial              Yes                                                      After 3 years                                                     $100k-$250k, depending on product 
Mutual of Omaha                  Yes                                                      1 decrease for life of policy                                     $25k-$100k, depending on product  
Pacific Life                        Yes                                                      1 decrease per year                                               $50k                              
Principal                    Yes                                                      After 1 year, subject to certain restrictions in the first 5 years$200k                             
Protective                            Yes                                                      After 3 years, 1 decrease per year                                $100k                             
Prudential                            Not guaranteed                                           1 decrease for life of policy is more likely to be approved       $100k                             
SBLI                                        Yes                                                      Not specified                                                     $100k                             
Transamerica                        Yes                                                      Not specified                                                     $25k                              

Methodology: Information based on policies from AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Principal, Protective, Prudential, SBLI, and Transamerica and may vary by carrier, term, coverage amount, health class, and state. Not all policies are available in all states. Valid as of 3/4/2021. 

Universal life insurance

If you have a permanent life insurance policy, you may have even more options. Adjustable life insurance — also known as flexible premium adjustable life insurance or even just flexible life insurance — is a type of universal life insurance that lets you change certain facets of your policy. That includes your coverage period, premiums and death benefit. Other policies may allow you to use the accumulated cash value to lower your premiums. Talk to your insurance provider about your options.

How to know if you have too much life insurance

Before you buy life insurance, it’s important to figure out how much life insurance you need. An independent broker or agent can help you weigh your income, debt, and other financial factors to determine the right amount of coverage for your family.

After any big life event, like those mentioned earlier, you should reevaluate your life insurance policy. 

Re-calculate how much life insurance you need 

The first step is to take a look at your gross salary, which may be significantly more or less than it was when you first signed your policy. Nicholas Mancuso, the senior operations manager of Policygenius' advanced planning team, suggests aiming for 10-15 times your income.

Then, you should tally up your long-term financial obligations (expenses + debts) and subtract your resources (after-tax income and liquid assets, such as cash, checking and savings accounts). That will give you your coverage gap, which should give you the amount of coverage you need. Don’t forget to add in some cushion for unexpected events.  

See the possible scenario below for a 50-year-old female who had minor dependents and a mortgage when they first bought their 30-year term life policy, but no longer has the same obligations. 

AgeDependentsIncome Annual financial obligations + debtLiquid assetsCoverage GapPolicy amount         
35 Minor children, mortgage, spouse$65,000$350,000                     $20,000$1M $1M  
50 Spouse$90,000$175,000 $50,000$500,000$500,000             

In this example, the policyholder is overinsured by $500,000 with 15 years left in their term. Decreasing their coverage amount will help them save money on monthly premiums. And since insurers base the policy decrease on the age when the policy went in force (35 in this example) this person would save about $30/month – or over $5,200 – by decreasing their coverage, based on term life insurance rates from February 2021

→ Read our full guide to calculating how much life insurance you need

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How to lower your life insurance coverage

If you’ve outgrown your coverage, the first step is to call your insurer or agent. They’ll let you know if you’re eligible to decrease coverage and what restrictions may apply. They can also tell you how your monthly or annual premiums will be affected by the coverage change.

Alternative ways to lower your life insurance premiums

Keep in mind, that if you need to lower your premiums but don’t want to decrease your policy’s face value, you may have other options. 

Make a lifestyle change

If you’ve made significant lifestyle changes — such as quitting smoking or losing weight — you may be eligible for lower rates under a process called reconsideration.

With reconsideration, you retake the life insurance medical exam a year or two after your policy is in force in order to be eligible for a better health class — and lower premiums.

If you are interested in reconsideration, it’s also worth getting new quotes, since a different company could have better rates.

→ Learn more about life insurance reconsideration and reapplication

Annual vs. monthly premiums

You can also try paying your premiums annually instead of monthly, which can get you a discount between 2-5% and save you money in the long run. 

Having too much life insurance means paying for coverage you don’t need, which negates the benefits of having life insurance. Talk to an agent or contact your insurance company to see if lowering your policy amount is right for you. 

Life insurance coverage amount FAQs

Can you have too much life insurance?

Yes, you can be overinsured with too much life insurance. This occurs when your policy amount outweighs your financial obligations minus your assets. 

Is there a limit to how much life insurance you can have?

You can have multiple life insurance policies, but your age, net worth, and income determine how much coverage you’re eligible for with the insurer. For instance, someone who makes $50,000 a year would not be able to get a $3 million life insurance policy. 

What happens if you outlive your life insurance?

If your term policy expires, you will no longer have life insurance coverage. You may no longer need life insurance, but if you do, you can convert to a permanent policy or buy new term insurance.