Posted by Mike Smith :: July 22, 2008 @ 7:17 am

Being over-insured is certainly less of a concern than being under-insured, but is still a source of inefficiency in our lives. For households where both spouses work, outdated thinking makes over-insuring a common occurrence.

Societal norms, generational traditions, and gender biasing continue to perpetrate the belief that men are the providers for their families. Women’s increasing success in the workplace has disproved this idea time and again, yet still the perception remains. As a result, many men take out much more life insurance than their situation warrants.

While their intentions may be pure, their logic is flawed. Traditionally, the sole wage earner would want sufficient life insurance to cover not only funeral expenses but also to provide for their spouse and family’s long-term financial needs. Having coverage to replace income for a long period of time made sense when few other sources of income were desired or possible.

When your spouse works, he/she is much less dependent on your income for survival. Too many people have enough coverage that their spouse would never have to work again in case of their death. While premiums may seem like a small price to pay for a windfall upon your death, your working spouse might feel bored, unfulfilled, wasted, etc., if he/she no longer worked. Situations vary, but the right amount of coverage should ease the transition from the dual income lifestyle you currently lead to the single income scenario if you were to die. You want to replace your income for a time, but don’t need to replace your spouse’s as well.

All of this discussion assumes that you die. If you do not, then the benefit of paying lower premiums in this more likely scenario may be worth much more than the possibility of riches in the unlikely one. Having more money available for savings, investments, or other types of insurance may be more beneficial.

Many younger workers would find greater benefit in extra disability insurance than they would in more life insurance. The likelihood of disability, and thus the need for coverage, tends to be much higher than death for younger workers. Here too, balancing cost versus true need for the benefit needs to be considered. If you were to become disabled and your spouse needed to care for you, then both incomes could suddenly be gone.

It’s nice to think that our spouses would never have to work again in the event of our death. The fact that they do work often indicates not only their desire to do so but also their ability to survive even without our support. This doesn’t make us unneeded, but rather suggests that the need we fill is increasingly less about financial support.