Am I Over Insured?

“I’m worth more dead than alive!” If only I had a dollar for every time I heard that, typically from the male of the household. This is quite a commonly held misconception, when in actual fact the insurance industry will not allow a person to be over insured.

Insurance companies have guidelines to determine how much life insurance a person may own. Life insurance applications are reviewed for financial justification of the amount of coverage requested. There are several factors used in this review, including annual income, household income, existing life insurance coverage in force and net worth among others.

In the rare case when a person applies for coverage that seems excessive and over insurance is suspected, detailed inspection reports will be ordered and the applicant will be asked to supply financial data.

In actual fact, the vast majority of Canadians do not have near the amount of life insurance that they can qualify for. The average Canadian owns $189,600 of life insurance and the average household owns $373,400 (CLHIA 2013).

Consider this: in 2014 the average Albertan earned $60,476. A 30 year old earning this amount each year and working until age 65 will earn just over $3 million (assuming a 2% increase each year). And a 30 year old earning $100,000 per year will have earned almost $5 million by the time he or she reaches age 65.

When you think about what you will earn in your lifetime, how much of that should you leave your family in the event that you die prematurely? This is a difficult question and one that would be hard to answer on your own. Fortunately there is help. A Capital Needs Analysis (C.N.A.) is a comprehensive tool that helps determine the appropriate amount of insurance for each individual. I would encourage everyone who has someone they care about to take the time to complete a C.N.A. with a professional insurance advisor.

In my 29 years as an insurance advisor I have delivered many death claim cheques. And never, not once, did the beneficiaries think that the cheques they received were too large.