Life insurance is meant to replace any financial loss that will occur if you die. Ideally, you should get enough life insurance coverage to provide for your lost income, pay off your debts, and cover any anticipated expenses. If your insurance policy is greater than this amount, you’re overinsured.
Insurers have limits to how much they’ll insure your life for, which usually prevents you from becoming overinsured. But if your insurance needs change or you can no longer afford your premiums, there are steps you can take to reduce your coverage amount so you’re not overinsured.
How to know if you have too much life insurance
Before you buy life insurance, it’s important to figure out how much life insurance you need.
It’s recommended that you have enough coverage to pay off all your debt, about 10 to 15 times your annual income, and enough to pay for anticipated expenses, like your children’s education. If you have more than that total amount, you’re probably overinsured.
Insurers have limits to how much coverage they’ll give you — usually 20 to 40 times your income, depending on your age — that prevents most people from becoming overinsured, although this limit is probably higher than the total coverage you need. While it’s important to get life insurance, if you get more than you need, you’ll be paying higher premiums unnecessarily.
At Policygenius, our experts are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.
How to re-calculate how much life insurance you need
After a big life event, reconsider how much coverage you need.
Start by looking at your gross salary, which may be significantly more or less than it was when you first signed your policy. Most financial experts suggest aiming for 10 to 15 times your income.
Then, tally up your long-term financial obligations (expenses and debts, including a mortgage) and subtract your resources (savings and liquid assets). That will give you the amount of coverage you need. It’s best practice to add in some cushion for unexpected events, if you can.
Below is one scenario for a 50-year-old woman who had minor dependents and a mortgage when she first bought her 30-year term life policy, but no longer has the same obligations.
Age | 35 | 50 |
Obligations and dependents | Minor children, mortgage, spouse | Spouse |
Income | $65,000 | $90,000 |
Annual financial obligations + debt | $350,000 | $175,000 |
Liquid assets | $20,000 | $50,000 |
Coverage Gap | $1,000,000 | $500,000 |
Policy amount | $1,000,000 | $500,000 |
In this example, the policyholder is over-insured by $500,000 with 15 years left in her term. Decreasing her coverage amount will help her save money on premiums.
→ Not sure how much coverage is right for you? Try our life insurance calculator
How to adjust your life insurance coverage
For term life insurance and whole life insurance, the two most common types of life insurance, you can generally decrease your coverage amount at least once during the life of the policy by contacting your insurer.
Most insurers will allow you to decrease your coverage amount, although some will have you wait one year or more after you’ve put the policy in force to make any changes.
Reducing your term life insurance by company
See how the top term life insurance companies allow you to decrease coverage based on how long you’ve held the policy and how much coverage you own.
For all of the companies below, the decrease is priced using your age when you were first insured, which means you won’t be subject to higher premiums due to age or new health issues.
Company name | Can you decrease your policy’s face amount once in force? | Restrictions | Minimum coverage |
|---|---|---|---|
Not guaranteed | After four years | $100,000 | |
Yes, during the free look period only | You may not decrease coverage amounts on policies issued after 2018 | $100,000 | |
Yes | After one year | $100,000 | |
Yes | After three years | $100,000 to $250,000, depending on policy | |
Yes | After one year, one decrease for life of policy | $25,000 to $100,000, depending on policy | |
Yes | One decrease per year | $50,000 | |
Yes | After three years, one decrease per year | $100,000 | |
Not guaranteed | Not specified | $100,000 | |
Yes | N/A | $100,000 | |
Yes | After one year | $250,000 | |
Yes | After three months, once per month | $25,000 |
Methodology: Information based on policies offered by policycentral from Brighthouse Financial, Corebridge Financial, Legal & General America, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Foresters Financial, Symetra, and Transamerica. Valid as of 01/01/2024.
Universal life insurance
If you have a permanent life insurance policy, you may have even more options.
Adjustable life insurance — also known as flexible premium adjustable life insurance or flexible life insurance — is a type of universal life insurance that lets you change your coverage period, premiums, and death benefit.
Other permanent policies may also allow you to use the accumulated cash value to lower your premiums. Talk to your insurance provider about your options.
→ Learn more about different types of life insurance
How to lower your life insurance coverage
If you’ve outgrown your coverage, the first step is to call your insurer or agent. They’ll let you know if you’re eligible to decrease coverage and what restrictions may apply.
They can also tell you how your premiums will be affected by the coverage change.
You can also cancel a term life insurance policy any time without penalty. This can be a good option if you receive an inheritance or pay off a debt early, making your coverage obsolete.
→ Learn more about how to cancel your life insurance policy
Alternative ways to lower your life insurance premiums
If you need to lower your premiums but don’t want to decrease your policy’s face value, you may have other options.
Make a lifestyle change
If you’ve made significant lifestyle changes — such as quitting smoking or losing weight — you may be eligible for lower rates under a process called reconsideration.
With reconsideration, you retake the life insurance medical exam a year or two after your policy has gone into effect in order to be eligible for a better health classification — and lower premiums.
Annual vs. monthly premiums
You can also try paying your premiums annually instead of monthly, which can get you a discount between 2% and 5% and save you money in the long run.
→ Learn more about how to pay for life insurance
The bottom line
Having too much life insurance means paying for coverage you don’t need, which isn’t financially ideal. If this is the case for you, it might make sense to lower your coverage amount or cancel your policy.
Talk to a policycentral expert or contact your insurance company to see if lowering your coverage amount is right for you.
