Many people become confused when attempting to determine their life insurance needs (or even if they need life insurance). In addition, some people have superstitious ideas regarding purchasing life insurance and resist it, as it forces them to confront their own mortality. Read on to discover the truth behind 10 common life insurance myths.
1. I’m Too Young to Need Life Insurance
Unfortunately, accidents and illness strike at any time, regardless of a person’s age or level of preparedness. The purpose of life insurance is to provide for your family in the event of such a catastrophic event. In actuality, life insurance premiums cost less when you are younger. What’s more, you likely have fewer assets and therefore a greater need for life insurance during your younger years.
2. The Life Insurance My Employer Provides Is All I Need
Some employers provide employee benefits including free life insurance (typically 1.5 times your annual salary). Additionally, you may be able to obtain a term life policy of four or five times your salary. This is a wonderful benefit; however, it only gets you about half the way there.
Most experts recommend you carry around eight to 10 times your annual salary in life insurance, if you have dependents. Additionally, if your income includes bonuses and commissions, the life insurance calculations of your benefit do not account for this “secondary” income. You may also receive a better quote obtaining private life insurance.
Finally, what happens if you lose your job? You may not be able to continue this insurance if you leave your employer. Consider your employer’s insurance a great benefit, but use it to supplement your life insurance, not supplant it.
3. The Best Life Insurance Is Term Insurance
Term insurance, and its rate, lasts for a specific period, usually age-related. As your age increases, so does your premium. It also does not accumulate any cash value. Generally, term insurance comes at a lower cost than whole life does, but whole life provides benefits such as the cash value component and guaranteed premiums. Determining which type is right for you depends on your needs and your budget.
4. The Only One That Needs Life Insurance Is the Primary Breadwinner
Although single-earner households are rare, they aren’t extinct, so this myth continues. It may seem, at first glance, that a spouse who does not contribute financially to the household does not need life insurance. However, a closer look repudiates this idea. Typically, the non-employed spouse performs a variety of duties a spouse with full-time employment does not manage, such as cleaning, cooking, transporting children to and from school and extracurricular activities, and running errands. Some tasks cannot be outsourced, but some, such as cleaning and daycare, can.
Of course, if you both work, but one makes more, losing that second income represents a huge financial loss, making life insurance even more vital.
5. I Can Get the Best Deal on Life Insurance via the Internet
The best way to get a good deal on life insurance , or any other type of insurance, is comparison shopping. The Internet is a good place to begin, but nothing beats discussing your financial needs and goals with a broker. An independent broker offers an easy solution to comparison shopping, providing multiple quotes from top agencies to get you the best rate.
6. The Best Alternative to Life Insurance Is Good Investing
Investing is a numbers game. Sometimes investment values go up; sometimes they go down. A portfolio worth $500,000 today may only be worth half that tomorrow if another recession strikes (for reference, see the recent Brexit financial news). A $500,000 life insurance policy, however, pays $500,000 no matter where the stock market stands.
In addition, investment portfolios only serve the needs of your family if they substantially outpace the amount of debt you carry. Even that may represent a delicate balancing act, as too much on the “black” column of your ledger may come with serious tax implications for your dependents, severely affecting the benefit of that investment portfolio. This doesn’t mean you should not invest, only that you should not rely on investments as the sole means of caring for your family.
7. I Can’t Get Life Insurance Because I Have Poor Health
If you have a terminal illness, then you are correct; finding life insurance is nearly impossible. However, most chronic illnesses do not bar you from purchasing life insurance. Your premium changes based on your overall health, of course, and some ailments or conditions result in higher rates, but unless your prognosis is terminal, you stand a decent chance of obtaining life insurance.
8. Life Insurance Is Expensive
Consumers have such a wide variety of life insurance options; you can almost definitely find a policy that fits your budget. You can mix and match policies, carrying a term policy as well as a whole life policy. There is also wide variety of riders, such as one that allows you to add to your coverage at a future date. Let your broker work for you to determine the best, most affordable coverage.
9. The Only Life Insurance Coverage I Need Is Two Times My Annual Salary
Life insurance needs vary based on the individual, but the idea that double your annual salary protects your family doesn’t hold water. Your family may face medical and funeral bills, as well as debts such as a mortgage, credit cards, or vehicle loans. Truly understanding your life insurance needs requires more than selecting a number to multiply by your annual income.
10. A Variable Universal Life Insurance Policy Is Better Than a Straight Universal Life Policy
The layers of fees in variable universal life (VUL) policies, combined with whether the subaccounts perform well, may cause a VUL policy‘s cash value to be lower than a straight universal life policy. If the market performs poorly, VULs may even require the payment of additional premiums to keep the policy in force. Discuss these options with your agent for a better understanding of these policies.
Educated Consumers Make Smart Choices
Purchasing life insurance is an important part of protecting your family after you’re gone. This means educating yourself, not relying on myths and stories to make these important choices. An agent helps you research your best options and determine your insurance needs. He then quickly and easily provides comparisons from top-rated insurance companies to get you the best coverage at the best price.