Life Insurance Myths – The Truth About Getting The Best Coverage

by Guest Contributor

Life Insurance MythsSome consumers avoid thinking about their family’s need for life insurance because it requires them to consider their own mortality, and unfortunately, that prevents them from educating themselves on the topic. There are certain life insurance myths that lead many to misunderstand its purpose, cost and availability.

There is also a healthy amount of distrust regarding the insurance industry as a whole. This may be because, in exchange for your hard-earned cash (premiums), consumers simply get a promise. Insurance is not tangible – it is a financial instrument with an “if-then” statement. If something bad happens, then you get a payout. If nothing bad happens, then you got peace of mind and not much else.

This “trust” issue isn’t helped by the fact that everyone knows someone who has dealt with a sleazy insurance salesman or agent/broker.

The following will help dispel a few prevalent life insurance myths.

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The life insurance you get through work is enough.

Most employers provide 1 or 2 times your annual salary in life insurance coverage, and that is simply not enough, unless you are single with no dependents. When calculating the amount of life insurance you need, a simple multiple of your income is not the precise financial analysis needed to determine the death benefit you should buy, but it can simplify the calculation and give you a ballpark.

For this reason, some financial experts may suggest that you buy up to 8, 12 or 15 times your annual salary for your family to maintain some semblance of their current lifestyle. To be more accurate, use this financial calculator.

Either way, the coverage you get through your benefits package at work is not enough, especially if you have mortgage payments, student debt, car loans, credit card debt, childcare costs, etc.

You should also consider the following: what if you change jobs and your next employer provides less protection, or even worse, doesn’t offer it at all? It might be possible to convert your policy into a private one purchased directly through the carrier, but as you get older, premiums will increase. Because age plays a critical role in a company’s actuarial tables, your new term policy in the future will inevitably be more expensive than it would be today.

Save yourself the trouble down the road – if you are young, healthy and definitely need life insurance, buy a private individual policy soon.

Life insurance costs too much.

According to a recent joint study by LIMRA and Life Happens:

  • 1 in 4 Americans admitted they needed more life insurance.
  • Only 10% of them said they would be buying more in the next year.
  • 63% explained that the main reason was that life insurance is too expensive.
  • However, 80% of them overestimated the cost of coverage.
  • 25% believed that a 20-year term life insurance policy for $250,000 would cost a 30-year old $1,000 a year or more.
  • The real price of that policy is $150 per year.

When it comes to the financial security of your family, assumptions can leave them in dire straits. Before determining life insurance is unaffordable, research and compare policies, pick the best kind for your needs, and start comparison shopping.

You can’t get insured with poor health.

Plenty of life insurance companies underwrite and issue policies for applicants with all types of medical conditions and high-risk occupations. There are even companies that specialize in policies that altogether skip the medical exam and health underwriting process.

Known as “Guaranteed Issue Life Insurance”, carriers only ask 3 questions that will get you denied.

If you answer “yes” to any of these questions, you won’t be issued a policy. Otherwise, assuming you can afford the inflated premiums for limited coverage, you’ll be insured. Nevertheless, with the right planning, you’ll never need to consider guaranteed coverage because you should have already purchased protection before you absolutely needed it.

Life insurance is only for older people.

On the contrary, if you wait until you are in your late 30s or 40s, not only will insurance be more expensive, but you may develop a health problem that prohibits you from getting the cheapest rates or coverage at all. More than likely, you should buy a 20 or 30-year term life policy when you are relatively young and healthy, and it will cover you through most of your life.

However, if you are single with no debt, no co-signors (think your parents and student loans), and no financial dependents (children out of wedlock, parents or grandparents), you just don’t need life insurance.

You only need to insure the breadwinner of the household.

Even if your spouse is unemployed, he/she is probably at home taking care of your family and home. Replacing that contribution by hiring a cook and maid, and paying for childcare can be expensive. Unless you are wealthy or have substantial disposable income, you may need insurance for both spouses.

Final Word About Life Insurance Myths

You can never be replaced, but if you have life insurance, you can protect your family from financial distress, especially during a time of profound grief. Perhaps you’ve been putting off purchasing life insurance because of these common misconceptions. The more you procrastinate, the more you’re going to pay in the long run.

Before contacting an agent or financial advisor, conduct your research and determine which type of life insurance is right for you. You don’t want to wait until it’s too late, because the thing about life insurance is, when you need it, it’s already too late to get it.

As the primary blogger at MyLifeInsuranceQuotes123, Gary focuses on providing unbiased life insurance information to help consumers research, find and compare the best and cheapest coverage. He is also an active member of the personal finance community at Gajizmo.com.

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Guest Contributor has written 221 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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