Life insurance myths abound for a good reason — no one wants to talk about their own mortality.
If the idea of discussing life insurance sends shivers up your spine, you’re not alone. Many people are uncomfortable thinking about their own mortality, allowing for a discomfort that enables life insurance myths and misconceptions to creep in and take root in your imaginations and taint your decision making process. It’s no wonder that only 44% of adults have life insurance, according to LIMRA.
Here are 10 life insurance myths you no longer have to fall for. We debunk the best way we know how — with facts.
Myth 1: No spouse, no dependents – no life insurance
The facts – Young, healthy, single people without children die every day and their burial and other final expenses including debt can be a burden on surviving parents, siblings and friends. Your aging parents or a disabled sibling may not be relying on you now but might need to in the future.
A popular variation of this life insurance myth is: I’m young and healthy so it’s a waste of money. Life is naturally unpredictable and death, disability and illness don’t provide advanced word of their arrival. Having at least a minimal amount of insurance can go a long way to protecting you if you unexpectedly suffer an injury or illness that makes you uninsurable, and help you avoid this life insurance myth.
Myth 2: Life insurance is too expensive
The facts – The cost of life insurance, particularly term insurance, has fallen precipitously in the past 15 years. If you are a non-smoking 25-year-old you can get a $500,000, 20-year level term policy for 70 cents per day. A healthy non-smoking 40-year-old can get the same policy for about $1 per day.
Level premium term insurance does more than provide a death benefit. It protects your wallet if injury or accident changes your health status, causing your rate for new insurance to become truly too expensive. Don’t fall for this life insurance myth.
Myth 3: Term insurance is always the best choice
The facts – No single type of life insurance is better than any other under all circumstances and for everyone.
Term insurance is for a specific period of time after which it ends. Term insurance does not accumulate cash value, making it pure insurance which means it is lower in cost and ideal if your budget is limited or if you want added protection for a limited period of time.
Term insurance is not permanent and as time goes on your premium will increase each time you renew. Permanent insurance like whole life has a cash value component and a guaranteed premium for life. Whether it’s term or another type of life insurance it is best to have a mix of products that best meet your needs.
Myth 4: Investing is an alternative to life insurance
The facts – The first issue with this life insurance myth is that unless your assets are worth more than your debt you need life insurance.
Even if your assets exceed your debt does it do so by a large enough margin to serve the needs of your family? In the event you have more than $1 million of assets in excess of your debt life insurance may still make sense for tax purposes.
Savvy investors understand that investments are not stable and their value can rise or fall dramatically without regard for your needs or the needs of your survivors. Life insurance on the other hand is stable and a $500,000 policy will pay $500,000 whether the stock market or the price of gold is up or down.
Myth 5: Can’t get coverage with less than perfect health
The facts – In most cases unless you have been diagnosed with a terminal illness you can still buy life insurance.
It is true that not all insurance companies will insure all you if you have certain ailments or conditions but there are others that will insure you. Life insurance, like other types of insurance accesses the chances of having to pay a claim to determine the premium rate.
Insurance companies will classify your health on a scale with preferred at the top and substandard at the bottom. Your premium rate will be based on that scale.
Myth 6: Everyone pays the same rate based on age
The facts – Several factors are used to determine how much you life insurance will cost, including your age, gender, health and in some cases your lifestyle. Don’t believe the life insurance myth that the premium is the same for people of the same age.
When health and age are the same women will have a lower cost for the same insurance as men. The reason is that women live longer and so are at a lower risk of premature death. Your health plays a role in your insurance rate with healthier people paying a lower rate.
Your lifestyle can also play a factor in how much you pay for insurance. Smokers will pay a higher rate then non-smokers even if they are in perfect health because smoking increases your health risks in the future. Other lifestyle choices that can result in higher costs are risky hobbies like mountain climbing or skydiving.
Myth 7: Premiums are tax deductible
The facts – Federal and most states do not allow the cost of personal life insurance to be deducted from your income. The confusion with this life insurance myth comes from the fact that if you are a business owner and your life insurance is protecting the assets of your business the premiums are deductible.
Myth 8: There are rules for how much life insurance I need
The facts – The only hard and fast rule for how much life insurance you should have is enough. In other words everyone’s situation is unique, including yours. Rules, such as two years worth of salary are meaningless as a life insurance myth if you have two young children who will have needs that extend beyond two years.
Depending on your personal circumstance you should probably consult your accountant, financial adviser and lawyer in addition to an insurance professional to figure out how much insurance you actually need.
Myth 9: Only the family breadwinner needs insurance
The facts – This is a dangerous misconception as a life insurance myth because it ignores the value of a spouse or partner who does not work outside of the home. The duties and responsibilities of homemakers must be replaced when they are gone.
This is especially true in households with young children who will continue to need care after the death of a stay-at-home parent. Life insurance proceeds can be used to pay for things like child care and counseling that were not needed before.
Myth 10: My job provides enough insurance
The facts – Fewer and fewer employers are providing life insurance coverage as part of their benefits packages and those that do may greatly limit the amount of insurance they offer. Don’t believe the life insurance myth that your job provides enough insurance.
If you are fortunate enough to have life insurance coverage at work it is important to remember that your coverage will only be there as long as you work there. If you leave your job due to illness or injury and become uninsurable you will not have any insurance or be able to get any.
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