Life insurance is complicated. Sometimes it’s tough to know what information you can trust — who really knows best when it comes to such a personal decision? Let’s set the record straight by tackling some common misconceptions about life insurance policies.
- All life insurance is basically the same.
Life insurance policies can actually vary from each other quite a bit. To start, there are three different types of life insurance: employment-based, term, and permanent.
Employment-based life insurance usually only lasts for as long as you continue to work for the company that is providing the policy. If you change jobs, you’ll need to find another insurance option to protect your family.
In a term life insurance policy, your coverage only lasts for a pre-specified amount of time, often 20 or 30 years. This means that your annual premiums are low, but your family won’t benefit from any coverage after the term expires. Term life insurance is a particularly popular option among healthy adults, who often choose to invest the difference between their term premiums and what they would pay for a permanent policy.
In a permanent life insurance policy, your coverage lasts as long as you continue to pay your premiums, with no predetermined expiration date. Your short term premiums are higher, but these policies allow you to accumulate cash value over time. This is helpful for those who are in a high tax bracket and can benefit from an additional investment.
- Life insurance is too expensive to afford.
Many people think that life insurance is significantly more expensive than it actually is. In fact, a study by the Life Insurance Market Research Association indicated that people thinking about buying a life insurance policy overestimated the cost by more than 300 percent.
A typical term life insurance policy will carry an annual cost somewhere between $100 to $300. That’s just $10 to $20 a month — about the price of a subscription to an online streaming service!
- Single people don’t need life insurance.
It’s easy to think that you don’t need life insurance if you don’t have any dependents. If you don’t actively support anyone now, why would you need to leave them money after you’re gone? The answer is simple: even single people need to have enough funds to cover their medical, funeral, and personal debt costs when they pass away.
If you don’t have enough money saved, and you don’t have a life insurance policy, you could hit unsuspecting family members with the burden of paying for your after-death costs.
- Stay-at-home parents don’t need life insurance.
Did you know that the services a stay-at-home parent provides to their household would actually cost six figures a year if they were hired out? That’s right — the efforts of full-time parents are worth a nearly $200k salary! When you look at it that way, it’s easy to see that just because a stay-at-home parent isn’t the official “breadwinner” doesn’t mean they shouldn’t also have a life insurance policy.
Think about all of the costs your partner might be left to handle if you were gone. Things like childcare, cleaning, and other duties around the home can add up quickly — but a life insurance policy will make sure those expenses are covered.
- My employer-provided life insurance is all I need.
Unfortunately, employer-sponsored life insurance usually doesn’t provide enough of a death benefit to actually cover costs for your dependents. Most employer policies offer 1-2 times your annual salary, but experts recommend having a life insurance benefit of at least 5 times that.
In addition, you will generally lose your employer-provided life insurance if you accept a new job somewhere else. Occasionally, there are options to convert this policy into something you can keep, but the costs are higher than it would be to purchase your own coverage earlier on.
- I can’t get life insurance because of my health conditions.
It’s true that pre-existing health conditions can make it more difficult — and more expensive — to obtain a life insurance policy. But just because the process is more complicated doesn’t mean it’s impossible!
Many companies cover a wide range of health conditions, and some even specialize in underwriting high-risk cases. There are also options to get a policy that isn’t medically underwritten at all. It is important to note that these policies will likely be more expensive than the average cost of $10 to $20 a month, but when the choice is between providing for your dependents or leaving them empty-handed, the price tag tends to be worth it.
At Lindow, we know that life insurance isn’t just complex — it can also be difficult to think about and discuss. No one wants to imagine leaving their family and friends behind, but it’s important to take steps now to ensure everything is planned ahead.
Our independent insurance agents are here to walk you through every step of the process to make sure you have the right policy. Get in touch with us today!