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Dangers of Too Little Life Insurance

When was the last time you checked your life insurance coverage to see if you're underinsured? For most people, the answer to that question is "never." The typical policyholder accepts employer-subsidized coverage without verifying that the policy even meets his/her needs. Read on to learn the dangers of underinsuring your life.

Inability to Pay Debt Obligations

A meager policy will impair your loved ones' ability to handle the debts you leave behind after you die. Do you know the signs of being underinsured? With regard to life insurance, one of the red flags is that your coverage amount does not allow for debts like mortgage loans, auto loans, education loans, and credit card debt. It's highly unlikely that your spouse would be able to manage these burdens without the assistance of your salary. To ease some of the financial pressure your death will put on your family, make sure you include plenty of money in your policy to pay off your mortgage, credit cards, and other loans in full. That way, your loved ones will only have to deal with day-to-day expenses, which are much more manageable on one salary.

Barriers to Long-Term Goals

Do you think your kids will be able to go to college if your life is underinsured? When a major breadwinner dies, a family's long-term goals can be severely compromised or even abandoned if the deceased was underinsured. A paltry plan will not give your loved ones the means they need to put your children through school, make needed improvements to the house, or give your partner a comfortable retirement. If these are things you want for your family, there's a good chance your existing plan does not afford enough coverage to accomplish them. Your life is dangerously underinsured if your policy does not allow for long-term goals.Tree with shadow

Reduction in Living Standard

In the worst-case scenario, your life insurance policy will be so inadequate that it does not even provide enough income for your loved ones to maintain its current standard of living. If so, your loved ones may have to sell their home or take on additional jobs just to make ends meet. If the annual income your coverage will provide your family is below what they are used to currently, then you are most likely underinsured. Considering what this will do to your family, are the small savings on premiums really worth being seriously underinsured?