Life insurance provides a vital function for millions of Americans. It enables people to protect their family and loved ones from financial devastation in the event of their deaths. However, perhaps because life insurance is so important, it is also a topic that people often have very strong opinions and beliefs about. Frequently people are well informed about their life insurance options. Unfortunately though, misinformation is also very prevalent and it can potentially do a great deal of harm. In the brief article that follows we will set the record straight on some commonly held myths about life insurance.
The Myth: Life Insurance isn’t affordable.
The Facts: Many of the people who need life insurance the most may be reluctant to get it because of a falsely held assumption that it will not be affordable. In fact life insurance rates vary significantly depending on the type of coverage as well as the person’s age and health status. In most cases it is very possible for the average person to find affordable life insurance.
The Myth: You need X times your annual income.
The Facts: Many people try to find a handy rule of thumb to determine how much life insurance they need. Often this will take the form of beliefs expressing that someone should have 2 X, 3 X, 5 X, etc. their annual income. However, the fact is that there is no one size fits all model like this. Individual life insurance needs vary significantly from person to person and it’s completely plausible that two people with exactly the same annual incomes will have drastically different life insurance needs due to individual factors such as dependents, risk, assets, and more.
The Myth: You must have life insurance to pay off your debts.
The Facts: This is a tricky myth because it has elements that are true and elements that are false. On the one hand, debt will not be inherited by one’s hairs. Thus if the only concern is not leaving your loved ones with debt, then this is false. However, debt can and does eat into your estate and reduce the amount of money and assets that your beneficiaries will inherit. Paying for estate tax is another common reason that people get life insurance, and while this isn’t actually debt per se, it is once again something that could take a sizable chunk out of your estate if provisions are not put in place to pay it.
The Myth: My Term Life Insurance Coverage at Work Is Sufficient.
The Facts: Once again this is a very personalized, variable thing because people’s life insurance needs vary so much. Beyond these personal variables, it is also important to know exactly what the details of the policy at work are. For example it is possible that the policy only covers accidental death rather than also death through sickness. By the same token there is a good chance that if you retire or change jobs, you may lose your life insurance coverage. Thus you need to be sure to review your policy carefully, consider all possibilities, and make your decision off of the bigger picture.
The Myth: Only families with young children need life insurance.
The Facts: While it is generally true that families with young children almost certainly need life insurance, it is not necessarily true that families without young children don’t need it. For instance as discussed above, you may wish to use your life insurance to pay estate taxes if applicable, or simply to create a larger legacy for your family. Finally, it is important to keep in mind that young children aren’t the only types of dependents. Your surviving spouse may not be able to earn enough to get by without your income, or you may have an ailing sibling, parent, or adult disabled child who relies on you for financial support.
The Myth: All policies are the same, only the amounts of coverage vary.
The Facts: The varying amounts are certainly one important factor. However, an equally important thing to keep in mind is the policy type itself. The coverage might be term life, traditional whole life, variable, or universal. All of these different policy types come with their own pros and cons and they are much more suitable for some people than others. Do the research and determine which type of policy best fits your needs.
The Myth: Stay at home parents don’t need life insurance.
The Facts: This is one of the most pervasive, and also most incorrect myths about life insurance. What people don’t realize or don’t fully understand the value of, is all the care and services that the stay at home parent provides. It goes far beyond simply daycare, into meal preparation, housekeeping, errands and much more. These things can get very expensive to replace, and this is only taking the financial cost of these services into consideration. There is of course also a good chance that you may need to take time off of work to deal with the loss and/or to help your children cope.
The Myth: Investing the money instead is better than buying life insurance.
The Facts: Many people are tempted to go this route instead because it feels like they have more control over their money or even that they are “gaming the system.” However, while many people do well with investing, many others do not. Remember that with life insurance it is a safe, guaranteed thing. With an investment you may lose some or all of the money, or you may see much more sluggish returns than you anticipated. Another factor is the timing. With life insurance you are fully covered for the total amount the day your policy goes into effect. On the other hand if you decide today to start investing rather than using life insurance, and then die next week, next month, or even next year, it is very unlikely that you will have accumulated even a fraction of the amount the policy would have been worth.
The Myth: I don’t qualify for affordable coverage due to my age or health status.
The Facts: Certain health conditions, or an advanced age, certainly make life insurance expensive in many cases. However, there are policies out there that make coverage affordable for just about everyone. You may also not have a clear picture of how much your age or health are affecting your coverage cost and eligibility. Before you give up, do your research and consult your insurance agent.
The above myths are actually just a small sampling of some of the different pieces of misinformation that we have heard over the years. As we have said throughout the article, the main thing is that you do your own research and discuss your needs with your insurance agent. Life insurance can seem confusing or overwhelming at times, but it is very important to get the proper coverage for your situation.