"What’s The Relationship Between Increasing Coverage And Annual Premium?"
While the obvious relationship is that the higher the coverage the higher the premium, this needs to be put in to perspective. The example below illustrates a base policy with 3 additional options, increasing coverage by 10%, 15% & 20% respectively. The annual premiums are shown for each scenario, as well as the cost differential for increased coverages as they relate to the base coverage.
While the premium differential seems to be relatively insignificant with respect to the increased coverage, there does not seem to be any rationale for having too much coverage. Granted, a 10% increase in coverage will cost only $57, but there may be a better use for $57 annual savings:
- You can use it towards the purchase of a $1,000,000 umbrella policy that would provide needed coverage, versus too much coverage.
- It could be used to purchase a decreasing term insurance policy designed to pay off your mortgage in the event of an untimely death.
- It could be applied to your regular monthly mortgage payment, thereby reducing the remaining term of your mortgage payoff.
- It could be used for enhancing your investment portfolio, including retirement planning…FYI— Did you know that investing $57 per year ($4.75 per month), with an annualized return of 6%, will grow to $2,194.69 at the end of 20 years?
Again, the key factor is to determine the proper amount of insurance needed. Then, secure the best policy that provides the required coverage.