Can you buy too much life insurance?

Michael Burton, CFP®, LHICUncategorizedLeave a Comment

Too Much Life Insurance
Life insurance for most people is about easing the transition to a new life for a family when a spouse passes away.  The most important aspect of that new life, the most important thing to replace for the long haul, is not money or a paycheck.  It’s relationships.  This must not be forgotten when making a decision about how much insurance to buy.
I think people can fall prey to buying insurance in very large amounts under the misguided assumption that a spouse can be “replaced.”  Most people would not state it that way overtly.  But the thinking is insidious.  And the wisest among us recognize how easy it can be to place more confidence in money and things than on people and lives.
In my opinion, buyers of insurance should be careful to not buy an amount of insurance that will insulate the surviving spouse against new relational attachments that are necessary for moving forward in life.  I have seen this play out in very practical ways:  sometimes bereaved and mourning spouses don’t start “living again” until they return to society and the workforce.  And sometimes that doesn’t happen . . . until the money starts to run out.
So, practically speaking, perhaps you decide (together) that buying an amount of insurance that plans for a return to work for the surviving spouse is not only acceptable . . . but advisable.  Perhaps in doing so you are planting a seed of confidence and faith that meaningful life – new life – can and will go on.  New jobs, new relationships, and even new homes can be profound experiences of moving forward.  I’m not saying that is what you should do, or what you should plan for; however, I’m saying that it’s a way of thinking about risk management that is perfectly acceptable.
The important thing, above all else, when deciding on the amount of coverage . . . is to be on the same page with those you will leave behind.  Let there be no surprises.
Lastly, it bears mentioning that certain studies have documented a positive correlation between life insurance ownership and suicide.  This is because all life insurance policies, provided they are owned long enough (in most states, only two years) will pay full death benefits in the event of suicide.
So, if there is any history of mental illness in a proposed insured’s life or in the life of his/her family, great caution should be used when determining the amount of life insurance.  It would be far better to buy an amount of insurance that errs on the low side than to discover, after the fact, that you’d bought a large amount of coverage that tempted a confused, down-on-his/her-luck loved one to permanently decide he/she was worth more dead than alive.
This has happened far more often than the life insurance industry will ever admit – it would be terrible for sales to put this out there.  But it does happen.