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There are lots of myths and misconceptions when it comes to buying life insurance. You might assume that life insurance is extremely expensive, or that you only need it when you get older.
Because life insurance is not a legal requirement, like car insurance, many people are not aware of how valuable it can be. In reality, almost everyone can benefit from having some type of life insurance, regardless of your age, income or your dependents.
Myth 1: I’m not old enough to buy life insurance
One of the biggest myths about life insurance is that you only need it when you’re older. In reality, there are many benefits to buying life insurance while you’re young and healthy. Life insurance is usually much cheaper when you’re young, and if you buy a term life insurance policy, you may be able to roll it over into permanent coverage, like whole life insurance, when you’re older.
“While no one likes to think about their death, planning for it by purchasing life insurance is wise and an extraordinary legacy you can leave. The rate for term life depends on factors such as your age, health, driving record and credit. So, the sooner you apply for a policy, the more coverage you may be able to afford,” says insurance expert, Laura Adams. Getting life insurance when you’re young could end up being much cheaper than waiting to buy a permanent policy when you’re 50 or 60.
Myth 2: Life insurance is expensive
Another misconception about life insurance is the price. In fact, life insurance statistics show that about 50% of people overestimate the cost of term life insurance. Like other types of insurance, the cost of life insurance is different for every individual, and can be based on your age, gender and overall health.
“One of the biggest life insurance myths or misunderstandings is that it’s too expensive or unaffordable for the average individual or family. If you’re relatively young and healthy, a $500,000 term life policy may cost less than $300 per year,” adds Adams.
Not only can life insurance offer valuable protection while you’re young, but you can likely find a policy that will fit into your budget. Term life insurance policies, which are popular among younger people, are pretty affordable and offer coverage for a specific number of years.
Myth 3: I don’t make enough money to need life insurance
Some people think that life insurance is only important for high net worth individuals, but again, this is just a myth. Adams explains, “Many people also mistakenly believe that you only need life insurance if you’re wealthy. You could argue that having a life policy is especially crucial for those with less to leave their heirs. The purpose of having life insurance is to protect those who depend on you physically or financially after your death.”
If you have a living spouse, children, or other family members who would need financial support if you were to unexpectedly pass away, you should consider purchasing a life insurance policy.
Myth 4: Stay-at-home parents don’t need life insurance
If you are a stay-at-home parent, don’t think you can get away without a life insurance policy. “Another insurance myth is that you don’t need a life policy if you don’t earn an income. That’s false because many families rely on stay-at-home parents for critical work. If they weren’t around, the surviving spouse or partner would have to pay for childcare and perhaps other household tasks,” says Adams.
Consider all the roles you play that would otherwise cost your family money. In many cases, families with one stay-at-home parent are able to avoid expensive costs like tutors, day care centers and babysitters. Even if you’re not bringing in a full-time income, your children and spouse would likely be impacted financially if you were to unexpectedly pass away.
Myth 5: My group life insurance is sufficient
Many people get life insurance as part of their workplace benefits. But unlike your health or dental insurance, group life insurance through your employer is not necessarily sufficient for your family’s needs.
Group life insurance coverage is usually based on your salary, and depending on how much financial support your family needs, you may need more coverage than what you’re getting. If you have group life insurance, it’s a good idea to supplement it with a personal policy that has higher coverage limits and various riders for customized protection.
Myth 6: I already have savings so I do not need life insurance
Saving money is a great financial habit, but even if you have a sizable emergency fund, do not think you can get away without life insurance. Generally speaking, it is not wise to rely entirely on savings to support your family members if you were to unexpectedly pass away.
Here is why. Even the biggest savings accounts can get drained in the event of a major life change. For instance, if you suffered a medical emergency, a chunk of the money in your savings account may go toward hospital bills, leaving your account much smaller than it was before. In the event of your death, there might not be enough leftover in savings for your family members to maintain their current lifestyle.
With life insurance, the death benefit is essentially locked up until you pass away. It is guaranteed money (in most circumstances) that your loved ones will have access to, and you do not have to worry about spending it all before then.
Frequently asked questions
What is the best life insurance company?
There are lots of life insurance providers on the market, and each one has its pros and cons. Some of the best life insurance companies we’ve are Mutual of Omaha, State Farm, Prudential, Northwestern Mutual and Guardian. However, it is important to shop around and compare providers based on your personal criteria.
How do I know how much life insurance to buy?
Everyone has different life insurance needs. To determine how much life insurance you need, consider how much it would cost for your loved ones to maintain their current lifestyle without your income. Consider costs like your mortgage, school tuition and other debts. There are also several models you can use to determine your coverage needs, like the DIME formula and the shortfall approach.
What is the difference between term life vs. whole life insurance?
Term life and whole life insurance are two of the most popular policies. A term life insurance policy covers you for a specific period of time, usually up to 30 years. A whole life insurance policy covers you for your entire lifetime. Term life insurance is typically cheaper than whole life insurance, but whole life offers more comprehensive coverage.
How can you save money on life insurance?
Unlike home or auto insurance, most life insurance companies do not offer discounts. The best way to save money on life insurance is to purchase a policy while you are young and healthy. Additionally, you may be able to get a lower life insurance premium if you improve your health, stop smoking and manage pre-existing conditions with your doctor.