A few weeks ago, an article appeared on Market Watch with the above title. I imagine that the title seduced many people to click on the link. While the article isn’t devoid of any meaningful content, there really isn’t much meat in it. Space constraints won’t allow me to address all ten, but I will address the two that I find the most egregious.
You actually have too much life insurance
The reason you won’t hear a life insurance agent say this is because it isn’t true. Oh, I suppose on a theoretical level it could be true, but in the 30 years I have been selling life insurance, I’ve never seen it. And there is a very logical reason for that.
Insurance companies have limits on how much they will insure any one person. Those limits vary from company to company, but most companies cap the amount at 20 times earnings, and that might be only up to age 30-35. That amount decreases with age, so that at age 60, most companies will only issue five times earnings.
So a 30 year old earning $50,000 would be eligible to purchase up to $1,000,000. Maybe that is what the author is referring to as too much insurance. But don’t forget, a 30 year old has a life expectancy of at least 50 years, so in my opinion, that 30 year old isn’t over-insured at all; conservative maybe, but not over-insured.
Those are the income limits. Insurance companies will also issue policies based on your net worth. If you are worth $50,000,000, most insurance companies will issue a policy in an amount up to $25,000,000 on the theory that you will lose close to 50% of your estate to taxes.
Someone could fake your death and collect on your benefits
The author doesn’t explicitly state it, but is he actually advocating that I tell my clients this? The author states “It’s relatively easy for thieves to make themselves beneficiary of a policy, submit a phony death certificate and collect the money.” Hey, in the age of identity theft, I’m not saying it’s impossible, but it certainly seems far-fetched to me.
First, the thief would need some way to determine the current owner, as only the owner can make changes to the policy. The owner is often the insured, but isn’t always.
Next, the thief would have to steal or counterfeit some blank death certificates, as a body is normally required before the medical examiner will issue one, and an insurance company will not pay a claim without a certified copy of the death certificate.
Lastly, a change of beneficiary just prior to death claim is a huge red flag for the insurance company, and will almost always result in follow-up ,which would likely expose the fraud.
Any title/headline that suggests you’re getting screwed by the agent and/or insurance company will generate traffic. I’ve noticed, and perhaps you have too, that the more sensational the title, the less meat to the story. And so it is with the Market Watch article.