In this article:
- 1. Life Insurance Is Too Expensive
- 2. Young People Don't Need Life Insurance
- 3. Employer-Provided Life Insurance Is Enough
- 4. You Only Need Life Insurance if You're the Breadwinner
- 5. You Can Only Qualify if You're Healthy
- 6. Life Insurance Is Too Complicated
- 7. You Don't Need Life Insurance if You Have Savings
Life insurance is important for providing immediate and ongoing financial support to your family in the event of your death. Unfortunately, misinformation can cause you to delay purchasing life insurance, even when you know the risks. Here are seven common myths to be aware of when you're making decisions regarding your life insurance.
1. Life Insurance Is Too Expensive
Worrying about the cost of life insurance is normal. Until you've received a personalized quote and compared the numbers to your budget, though, you can't be sure that it's too expensive.
The fact is the cost of life insurance varies from person to person based on several factors including your age, health, gender and occupation. The amount of life insurance coverage you need also plays a role in the cost. Premiums are often lower when you're young, healthy and need less coverage.
The type of life insurance will also play a large role in cost. Term life insurance, for example, is significantly cheaper than permanent life insurance options. If you're afraid your budget can't handle another insurance premium, be sure to compare types of insurance, starting with term life.
Life insurance rates vary by company. Fortunately, finding an affordable life insurance policy is often just a matter of shopping around, being sure to ask whether you qualify for any discounts. After reviewing quotes from several companies, you may be surprised at how affordable life insurance can be.
2. Young People Don't Need Life Insurance
Many people think life insurance is only for older people, but there's value in purchasing life insurance when you're younger. For one, getting life insurance when you're younger can save you money in the long run. That's because life insurance tends to be less expensive for young people with no health issues.
If you have a family or you're planning to have one, life insurance is important regardless of your age. Life insurance will provide financial support for your family and protect them from your debt if you pass away.
3. Employer-Provided Life Insurance Is Enough
Life insurance offered through your employer is a great job perk, but the coverage level may not be enough to cover your needs. Employer-provided coverage is usually either a flat amount, such as $50,000, or calculated based on your salary. It's better than nothing, but it might not be enough to support your family for long. A simple way to estimate the amount of coverage you need is to multiply your income by 10 and add in the cost of college for each of your children (if you plan to help them pay for school). As you do the math, you can quickly see that your employer's life insurance won't be enough.
You can supplement your employer-provided life insurance with another policy, one that's separate from your job and offers additional coverage and protection. That way you can be sure you have adequate coverage for your family. Not only that, but you'll have an outside policy that you can keep even if you change jobs.
4. You Only Need Life Insurance if You're the Breadwinner
Your contributions to the home are valuable even if you're not the primary financial provider. For starters, if your income helps support the household, life insurance is essential to keep the family afloat. If you're a stay-at-home parent responsible for child care and upkeep of the home, your surviving spouse may rely on your life insurance death benefit to hire help, to pay for day care and housekeeping or pay for a meal prep service.
Life insurance allows you to avoid passing on financial obligations to your loved ones, especially if you've cosigned loans or co-own a business.
Obligations aside, life insurance can allow you to leave an inheritance to your loved ones or provide a charitable donation to an organization you support.
5. You Can Only Qualify if You're Healthy
Many life insurance policies require a medical exam to receive a quote, but having pre-existing health conditions doesn't mean you can't get life insurance.
There are policies for people with health conditions that only ask for basic health information to get started. Your premiums may be a little higher, but you do have the option to shop around among different providers to find the most cost-effective policy.
Guaranteed issue life insurance is also an option. This insurance doesn't require you to have a medical exam or complete a health questionnaire, but premiums are more expensive. Check the death benefit details. Some policies may only pay out your premiums as a death benefit if you pass away within the first few years of purchasing your policy.
6. Life Insurance Is Too Complicated
It's easy to find life insurance overwhelming because of the abundance of options available, but it doesn't have to be difficult. Understanding the basics is often enough to get started.
For instance, you'll need to choose between the two main types of insurance. Term life insurance is the most straightforward, offering coverage for a specific time frame, while whole life insurance (the most common type of permanent life insurance) provides coverage for your entire lifetime. Whole life insurance also includes a cash value component, so premiums are usually significantly higher.
Working with an experienced life insurance agent is important to help you decide which coverage is best for you. They can answer your questions, talk with you about your goals and budget, and recommend a policy that meets your objectives.
7. You Don't Need Life Insurance if You Have Savings
It's important to have savings as a safety net for unexpected expenses or emergencies. Life insurance has a different purpose—to provide a financial cushion for loved ones after the policyholder's death.
Savings may not be enough to cover financial obligations and provide long-term support. You'd be surprised at how quickly savings can be depleted and leave loved ones without the financial support they need.
While having savings is definitely a plus, life insurance offers more protection to allow your family to maintain their quality of life without worrying about finances. They can keep the savings set aside for a rainy day and use life insurance to cover other important expenses.
The Bottom Line
If you're concerned about the cost of life insurance, you can start with a basic term life insurance policy, which will be more affordable. You can always review your needs periodically and adjust coverage if your financial situation changes.
As you prepare to shop around, keep in mind that some states allow insurance companies to set rates using credit-based insurance scores. If you live in one of those states, it's a good idea to check your credit score before you start shopping for life insurance to see where you stand. You may want to take steps to improve your credit before you apply.