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There are many misconceptions floating around 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. Unlike car insurance, life insurance is not a legal requirement. Therefore, many people are not aware of how valuable it might be. Bankrate’s insurance editorial team busts some of the biggest life insurance myths.
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 may be 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 may 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 percent 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 is based on factors like 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.
There are many different types of life insurance policies, and it may be easier than you think to find one that fits your budget, especially if you shop while you’re young. Term life insurance policies, which are popular among younger people, are pretty affordable and offer coverage for a specific number of years.
Myth 3: Stay-at-home parents don’t need life insurance
Even if you are a stay-at-home parent, you and your beneficiaries may still benefit from life insurance. “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 4: 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. Additionally, if you quit your job or are laid off, you will likely lose your group life insurance coverage.
Most employers base your group life insurance coverage based on your salary. Based on how much financial support your family needs, your group life insurance may not be enough. If you have group life insurance, it may be a good idea to supplement it with a personal policy that will follow you even if you change jobs.
Myth 5: I don’t need life insurance if I have personal savings
Saving money is a great financial habit, but even if you have a sizable emergency fund, you may still benefit from life insurance. Generally speaking, it may not be wise to rely entirely on savings to support your family members if you were to unexpectedly pass away.
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.
Myth 6: I can’t get life insurance if I have a pre-existing condition
For most life insurance policies, you will be expected to complete a medical exam before getting a quote or purchasing a policy. The exam allows a life insurance company to assess your overall risk and calculate your premium by identifying any potential health issues you may have. For older applicants or those with pre-existing conditions, this may be a daunting process. However, you may have more options than you think.
If your condition is minor or you are actively managing the risk associated with a medical condition, you may still be able to get coverage at a slightly surcharged rate. If you experience a more serious medical condition, you may still be able to get life insurance without a medical exam, like guaranteed issue coverage. Speaking with a licensed insurance agent may help you identify the best policy type for your specific pre-existing condition.
Frequently asked questions
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 identified include Mutual of Omaha, State Farm, Prudential, Northwestern Mutual and Guardian. However, you likely want to shop around and explore different coverage options to find the best company for your specific circumstances.
Individuals with dependents may feel more urgency to find adequate life insurance coverage. However, there are circumstances where life insurance may be beneficial, even if you don’t have dependents. Life insurance is typically cheaper the younger you are, so purchasing coverage early may set you up with more affordable coverage if you were to have children or take on dependents later. Additionally, you don’t have to name a dependent as your life insurance beneficiary. With life insurance, you could leave your death benefit to a nonprofit you’re passionate about. Speaking with an insurance agent about your circumstances may help you decide if you truly don’t need life insurance.
Everyone has different life insurance needs. To determine how much life insurance you need, you might consider how much it would cost for your loved ones to maintain their current lifestyle without your income. Potential costs may include 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.
Term and permanent life insurance are two primary categories for life insurance, with several policy types falling under these main classifications. A term life insurance policy covers you for a specific period of time, usually up to 30 years. Term policies are designed to pay a death benefit if the insured dies during the active policy term but will expire with no payout if the insured outlives the policy without extending or converting it. A permanent life insurance policy is designed to cover you for your entire lifetime, provided premiums are paid. For this reason, term coverage is usually much cheaper than permanent coverage.