The first step to making the right financial decision for you and your family is cutting through all the common misconceptions about insurance plans. Read on to find out the truth behind 11 of the most common life insurance myths that may be stopping you from buying coverage!
Myth #1: Life Insurance Benefits From My Employer Are Enough
Some companies offer their employees group term life insurance policies as part of their benefits package. Because of this, some salaried folks think that buying additional coverage is an unnecessary expense. However, these group plans may not always have enough life coverage to support an entire family after you pass away.
That’s because group life insurance typically provides coverage equal to roughly 1-2 times your annual base salary, excluding commissions, bonuses, and other secondary sources of income. However, financial experts recommend purchasing life insurance coverage worth at least 12 times your base salary to replace your income. Naturally, this number varies with the needs of your family, but death benefits from employer-sponsored policies generally aren’t enough on their own.
On top of this, your group insurance policy is non-transferable. That means switching jobs also means forfeiting your coverage. Some life insurance companies might let you convert your group plan to a term life policy, but this is usually more expensive than buying a new life insurance policy.
Myth #2: Only Breadwinners Need Life Insurance
One of the most common myths about life insurance is that only the “breadwinner” of the family needs to get coverage. However, the truth is that both earning and stay-at-home parents should be covered by life insurance products and services.
Because stay-at-home parents are tasked with childcare, home maintenance, and day-to-day management, their passing will likely result in emotional and domestic disorder. Given this, their families may eventually want to hire help to take over household tasks. Therefore, unless the “breadwinner” has enough disposable income to cover these costs, contacting a life insurance agent and negotiating for a policy is a sound financial choice.
Having a life plan for stay-at-home parents can benefit your family in more ways than one – the death benefit from the life insurance policy allows the “breadwinner” parent to take some time off to adjust to the loss.
Myth #3: Young People Don’t Need Life Insurance Coverage
Like anyone else, many young folks have jobs, mortgages, and financial obligations.
Most people tend to view life insurance as something you get when you ‘settle down’ – but, getting a policy in your twenties and thirties may actually be the best possible financial move.
That’s because young and healthy people can get whole life insurance or term life insurance at a much lower rate than older applicants. Even if the applicant is a physically fit 45-year old, they’ll still be getting higher rates than a 20-year old in average health.
Waiting for the “right moment” or “until you really need it” often means that you’ll need to pay significantly more in the long run. Furthermore, a whole life insurance policy purchased early in life usually has more time to build cash value for when you need a quick cash infusion.
Myth #4: Life Insurance Is Too Expensive For Most People
People often think that life insurance policies cost more than they actually do. According to an Insurance Barometer Study in 2015, millennials overestimate the life insurance costs by 213%, while Gen Xers overestimate by 119%. A healthy person in their thirties can easily purchase a policy with a substantial death benefit for only hundreds of dollars a year.
Myth #5: Only People In Perfect Health Can Get Life Insurance
One widespread misunderstanding about life insurance is that every applicant has to be in perfect health to get any kind of coverage. The truth is that life insurance companies conduct risk assessments on every applicant and adjust their premiums based on the results. That means folks with manageable conditions like high blood pressure, diabetes, or even sleep apnea can still buy the whole life or term life insurance policy they need. Do note that applicants with these conditions need to be ready for higher premiums.
This doesn’t mean that applicants with “high-risk” conditions can’t get coverage. On the contrary, there are two types of life insurance options that may still be available to them: no-exam life insurance and final expense insurance.
As the name suggests, no-exam life insurance doesn’t involve any medically-backed risk assessment, meaning that the cost of your coverage is based on your age rather than your overall health. That makes this policy a valuable option for applicants with terminal illnesses. Additionally, final expense or “pre-need” insurance provides only enough coverage to cover the cost of a funeral or burial. These plans are usually bought directly from a funeral home, and they typically aren’t as concerned about your mortality as life insurance companies are.
Myth #6: Term Life Insurance Is Always Better
Some financial experts may say things like, “term life is always better than whole life insurance!” but this isn’t always true. While term life insurance is usually cheaper than other permanent forms of coverage, it can come at the cost of outliving your death benefit.
Therefore, term life options can be suitable for users looking to cover a temporary liability like mortgages or student loans. But applicants that aim to leave something for their families may want to consider permanent life policies instead. That’s because there isn’t a one-size-fits-all solution to your family’s specific needs.
Myth #7: You Can’t Adjust Your Coverage
Contrary to what you may think, the terms of your life insurance policy aren’t completely set in stone. While this may vary per life insurance company, you can often apply to adjust your coverage in accordance with major life changes. That means you won’t have to get a second policy to cover an addition to the family or a new loan.
There is one caveat: adjustments can usually only be made at least three years after your policy becomes active. Given this, some types of life insurance may even be configured to scale over time, meaning that your premiums will start small but increase as the policy ages. Even term policy owners have the flexibility of converting their temporary plans into whole life policies if they require continued coverage past the initial expiration date.
Myth #8: Investing Is Better Than Buying Life Insurance Protection
Unless you have the time to constantly watch the market or have an extremely capable financial manager on board, investing can be challenging. This is especially true if you’ve decided to bank on your investments to provide for your family after you’ve passed away.
Unlike life insurance policies, investments move with the market – that means there’s always the risk of losing the money you planned to set aside for your loved ones. For this reason, we recommend having these policies alongside your investments for the best possible outcome. Most life policies may not have the potential for exponential growth, but the security it provides will be invaluable after you pass away.
Myth #9: Only People With Dependents Need Life Insurance
Many people think that they should only buy life insurance if they’re supporting their loved ones or have to cover child care expenses. However, even unmarried folks with no children or dependents can benefit from having a life policy.
Specifically, single people that fulfill the following criteria might want to consider getting life insurance:
If they’re likely to have unpaid credit cards or have student loans with a co-signer
If they have no pre-need plans to cover burial costs and final expenses
If they run a business by themselves or with a partner
If they want to leave some money to someone in their family or a charity
That’s because when people pass away, their family members and loved ones are usually burdened with covering their unpaid expenses. Therefore, even if a person doesn’t have any children or other dependents, coverage always helps the people they leave behind.
Myth #10: Your Premium Payments Are Tax-Deductible
Unless you’re self-employed or have your own small business, the costs of your term policy aren’t considered tax-deductible. That’s because the IRS considers life insurance purchases similarly to any other personal expenses. Therefore, your life plan is no different from any other purchases come tax season.
Myth #11: Saving Is Better Than Having A Policy
Some folks may think that stashing money away in a bank account is the best solution for providing for their loved ones after they pass away. However, this really only works for particularly wealthy individuals.
For most, life insurance policies should exist alongside your savings. Because even if investments fail and assets are liquidated, your beneficiaries will still have a financial safety net to pull from when you die. Whole life insurance policies, in particular, have one distinct advantage over basic savings accounts: their cash value.
Unlike savings accounts, your policy’s cash value can be used for easy-access loans with low interest rates. They can also be used to pay your policy’s premiums, making your life plan a self-sustaining asset.
The Bottom Line
Many individuals shy away from buying life policies because of common misconceptions and myths surrounding insurance. But having a policy in your pocket means your family will be able to maintain their lifestyles and cover day-to-day expenses even when you’re gone.
Ready to purchase coverage and find the right policy for you? Contact us at Wesley LLC to find out how we can help!