There are a lot of misconceptions floating around regarding life insurance, some worse than others. Making matters worse, there are a number of myths about life insurance that cause people to make the wrong decision regarding this critical financial product. Here are the top 7 myths about life insurance busted.
10 – I Don’t Need Life Insurance
If you don’t have any debts or dependents, then this statement may be true. In every other case, you need life insurance. Life insurance can pay off your debts when you die. If you have a spouse and dependents, you want enough life insurance to pay off your debts and replace your income for at least a few years.
09 – Employer Provided Life Insurance Is Enough
There are several reasons why this isn’t true. First, employer provided life insurance is generally equal to one year’s income. Most of us need ten years’ worth of income to replace our income when we die, since your survivors may invest the money and live off the stock market returns. If you have several dependent children, 20 years of income is the better choice. A subtle problem with employer life insurance is that it is typically based on your base pay and doesn’t reflect bonuses and overtime that factor into the income your family is living off of and need to replace.
08 – I Should Rely on Employer Offered Life Insurance
The employer provided life insurance only applies if you are employed with the employer when you die and the benefits remain in effect. If your hours are cut to part time, you may lose the employer benefits. If you are forced to quit or retire for health reasons, you’ve lost your health insurance. And you can’t get insurance anywhere else. The better choice is to get life insurance you pay for and will then be able to retain as you change jobs.
07 – Only the Breadwinner Needs Life Insurance
If there is a stay at home parent in the household, they need life insurance. While they don’t generate an income, you’ll have to pay someone to clean house and watch the children if you die. This is why the other partner needs life insurance even if they aren’t working.
06 – Life Insurance Is Too Expensive to Consider
This is only true in some cases. Whole life insurance or other types of insurance that try to combine investment and savings products with a life insurance policy are much more expensive than term life insurance. Term life insurance is the better choice, since you are paying for life insurance coverage when you die and nothing else. Whole life and other hybrid products pretend to be an investment, but any money you borrow against it are subtracted from the life insurance policy when you die. Get basic life insurance on a 20 year term, and it is relatively affordable. You also don’t need life insurance once the kids are out of the house, your mortgage is paid off, and the surviving spouse can live off your retirement savings. This is why most people don’t need life insurance across their entire lifetime.
05 – You Have to Take the Policy Your Insurance Company Recommends
Life insurance is a financial product, and it is available through many different financial institutions. You don’t have to sign up and pay for the policy your insurer recommends. In fact, you could save a lot of money when you compare life insurance policies against each other. Visit iSelect to learn about your options. You can choose a policy that fits your budget and provides the level of coverage you need. And you don’t have to pay for bells and whistles you don’t need.
04 – I Can’t Quality for Life Insurance
Even 70 year olds can get life insurance, though the premiums are steep. When it comes to health insurance, there are relatively few health conditions that outright disqualify you. This is one reason why you want to get life insurance sooner rather than later, so that the policy is in effect when your health does start to deteriorate.
03 – I’m Too Young to Need Life Insurance
If you have children, you need life insurance, no matter how old you are. If you have debt that is otherwise saddled on your spouse or parents, you need life insurance that can pay off the debts.
02 – Life Insurance Is an Investment
This myth has some basis in truth. There are unscrupulous life insurance agents who sell you whole life insurance, touting it as an investment. They tell you that you can borrow against it as an asset. What they don’t say is that you’re borrowing against the balance paid out when you die. They also don’t tell you that it is that there are hefty fees for borrowing against your life insurance policy. You’re not doing much better than borrowing against your retirement plan. But you are not self-banking. You’re getting ripped off by the insurance company trying to justify the greater premiums of the whole life policy.
01 – Older People Don’t Need Life Insurance
It isn’t uncommon for people to assume they don’t need life insurance once their children are grown and out of the house. However, life insurance is an invaluable tool for protecting your surviving family. Life insurance proceeds can be used to pay off your remaining mortgage, student loans you co-signed with your child or medical debts when you die. That preserves capital and ensures your surviving spouse can continue to live off your combined savings. Life insurance proceeds could be used to pay inheritance taxes in addition to your burial costs. Or it could fund a special needs trust for a dependent disabled child.