Life Insurance: 5 Signs You Might Be Underinsured

If you have dependents—or just loved ones who you want to take care of after you die—life insurance is critical. This coverage helps ensure your lost income doesn’t translate to tangible material losses for your family once you’re gone.

But how much life insurance is enough? That’s a question whose answer can change significantly over your lifetime, and an important one to answer correctly.

You may be underinsured with life insurance coverage if… 1. Your only life insurance coverage is through your employer. While some life insurance is certainly better than no life insurance, if your only coverage is through your employer, you may not have enough. These plans generally offer very limited coverage (like a year’s worth of your salary, maybe two), which is unlikely to be enough to meet your family’s needs if you have any significant debts or children whose college educations you’re hoping to help fund.

Furthermore, life insurance offered through your employer is usually contingent on you keeping that job, so if you leave your position for any reason, the coverage disappears.

Finally, buying an individual policy gives you access to different types of life insurance policies, including permanent life insurance, which has living benefits you can use while you’re alive.

2. Your income went up. Getting a raise is almost always a good thing, but if you’re making significantly more income today than you were when you first bought your life insurance policy, you may find yourself underinsured. A higher income usually comes with associated lifestyle changes, and learning how to live with less is likely the last thing your loved ones will want to do if you depart unexpectedly.

3. Your stay-at-home spouse doesn’t have life insurance. If your stay-at-home spouse doesn’t have life insurance coverage, you’ll want to consider getting them a policy. Even if they don’t make an income that would need replacing, they perform valuable services like childcare that would need to be paid for if they’re no longer there.

Watch the Virgen family’s Real Life Story to see just how critical life insurance was for a family who, thankfully, insured Teresa, a stay-at-home mom. If not for the insurance, they’re certain that they would have lost their home.

4. You had a child. As every parent knows, having a child is expensive—in fact, in 2023, raising a child costs more than $21,000 per year on average. (And that’s before you factor in college!)

All of which is to say, if you’re a new parent or you brought an additional child into your family, it’s a good time to review your life insurance coverage and ensure you have enough to meet your dependents’ long-term needs, including food, shelter and education, until they’re of age. Given the high cost of childcare (and the precarious financial position of an underinsured single parent), even one child can increase your life insurance needs significantly.

5. You bought a new home. Paying the mortgage is one of the most pressing financial needs for any family—and more pressing, still, for a newly widowed spouse. If you purchased a new home since you first got your life insurance policy, you may find that you need more coverage to help ensure your loved ones can successfully pay down that debt. After all, moving is never fun, especially in the face of a tragic loss.

While it can feel overwhelming to determine how much life insurance coverage you need as your financial situation changes over time, it’s also well within your power to ensure you’re sufficiently covered. Life Happens’ Life Insurance Needs Calculator is a great starting point for estimating how much coverage you need. A half hour of work today can translate to years’ worth of financial stability in the future.

Divya Sangameshwar is an insurance expert and spokesperson at ValuePenguin by LendingTree and has been telling stories about insurance since 2014. Her work has been featured on USA Today, Reuters, CNBC, MarketWatch, MSN, Yahoo, Consumer Reports, Consumer Affairs and several other media outlets around the country.

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