Life insurance is one of the most common types of insurance that people buy. In 2013, 62% of Americans had at least some life insurance coverage (Source: Insurance Information Institute, 2013). Yet life insurance is also one of the most misunderstood types of insurance. All too often, people don’t understand some of the basic facts about life insurance – who needs it, how much coverage to buy, and what purpose it serves. Below, we debunk five of the most common myths about life insurance coverage.
Myth #1: The life insurance I get through my job is enough.
Fact: If you get life insurance as part of your benefits package from your employer, it’s definitely a nice perk, but it may not meet all of your needs. First, that insurance is not permanent. If you leave your employer, your coverage probably won’t follow you. Second, the coverage you get may not be enough to meet all of your family’s needs if you were to pass away. Most employer-provided life insurance policies provide death benefits equal to about one year’s worth of your salary.
But if you have a family that you support, you may need coverage that pays benefits between five and 10 times your annual salary. If you have a spouse who does not work, a large mortgage, of special-needs children, having enough life insurance coverage that will allow your loved ones to live comfortably after you die is even more critical.
Myth #2: I’m single, so I don’t need life insurance.
Fact: It’s true that unmarried and childless individuals often have less need for life insurance than people who are married or have children. But even single individuals might benefit from life insurance in certain situations. If you have anyone who would be negatively affected financially by your death, you may want to consider buying a policy.
For example, if your parents cosigned your student loans or mortgage, a life insurance death benefit can help them pay off that debt if you die unexpectedly. Life insurance can also help cover end-of-life expenses like a funeral. Another reason to buy coverage now? Your life may change, and it may be easier – and cheaper – to get coverage now when you’re young and healthy than later in life. Finally, life insurance is a way for you to leave a legacy to beloved family members or your favorite charities, even if you haven’t had an opportunity to accumulate significant assets.
Myth#3: I don’t work, so life insurance isn’t necessary.
Fact: If you’re a stay-at-home parent, work full-time caring for an elderly parent or other family member, or don’t work outside the home for another reason, life insurance may seem like an unnecessary expense. But even if you aren’t financially compensated for it, the work you do still has value to your family – value that could be costly to replace if you passed away.
Consider this: If you care for children and manage the household, your spouse would have to find someone else to take over those duties or cut back on his/her own work hours to take over the tasks himself/herself. A life insurance benefit can help cover those expenses and make it easier for your family to cope after you’re gone.
Myth #4: All life insurance is the same, so I should just get the cheapest policy.
Fact: There are many different varieties of life insurance, and the best one for you depends on your specific needs. While it’s easy to simply shop for insurance coverage based on price alone, you need to look carefully at each policy to be sure that you understand what you are – and aren’t – getting. First, you need to decide between term insurance, which offers only death benefits and is valid for a fixed length of time say (20 years): and permanent or whole insurance, which offers a death benefit but also accrues a cash value.
There’s also variable life insurance, which combines insurance coverage with an investment component: and universal life, which is similar to whole life but offers more flexibility in how you pay premiums. You then need to consider your specific coverage needs (based on your income, debt, family’s lifestyle, and other factors), how much of a premium you can afford, how long you need coverage to last (if you’re buying a term policy), the policy’s riders (or limitations), and how insurance fits into your overall long-term financial plan.
Myth #5: Once I buy a life insurance policy, I’m all set.
Fact: Life insurance is not a set-it-and-forget it product. Your life insurance needs will change over time – as you marry, have children, advance in your career, and eventually retire. To make sure that your coverage is meeting all of your needs every step of the way, you should include a review of your life insurance coverage as part of your annual financial to-do list.
Whether you are considering buying a life insurance policy for the first time or want to review an existing policy, please call.