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Are you over insured?
If you are considering the full picture of your financial health, it’s likely you have quite a few insurance policies. In addition to auto and homeowner or tenant insurance, you may have life and disability or critical illness insurance, and possibly creditor insurance and even pet insurance.
All of these premiums can add up to a large percentage of your income, especially if you have too much coverage. Are you overpaying on insurance? Let’s look at some general guidelines so you can get an idea of how much insurance you really need.
Life insurance
You should have a minimum of 10 times your annual income, and ideally 15 to 20 times your income. Here’s the reasoning, using some simplified numbers.
If you earn, say, $100,000 a year, at 10 times your income your policy would provide $1 million. Invested with earnings of 5% a year, that would give your family an income of $50,000. But with a policy for 20 times your income, or $2 million, that 5% in earnings would fully replace your $100,000 income.
Keep in mind that life insurance can also be used to pay down a mortgage, clear debts and cover final expenses, all of which help relieve the financial burden on your loved ones.
Disability insurance
A serious accident or critical illness that strikes during prime earning years can prevent you from working, causing significant financial disruption.
Long-term disability insurance provides a monthly income of up to 70% of your annual gross income if you’re unable to work due to an accident or critical illness. Some employers offer disability plans, but terms vary. Be sure to find out how much you would receive and how long the coverage lasts.
If you are covered for less than 70%, or if your workplace only offers short-term disability (or none at all), would you be able to pay your expenses while you recover? Remember that if all or part of the premiums are paid for by your employer, the benefit payments are taxable.
Too much? Or too little?
If you’re like many people, you may not even know how much coverage you have. Take a moment to dig out those policies. It’s quite likely that, instead of having too much coverage, you actually have too little. If that’s the case, then rather than overpaying, you’re putting yourself, your family, and your assets at risk.
If you’re concerned about the amount of insurance you have, talk to your Carte Financial Group Advisor. Insurance calculations must be based on individual circumstances, and your Advisor can take a holistic view of your family and financial situation to recommend the amount of insurance that’s right for you.