As a general rule, every type of insurance can be confusing, especially when a layperson listens to life insurance myths and attempts to read the content of an actual policy. Not because they don’t understand the concept of insurance, because most people do; but because policy information is typically written by lawyers who use a lot of legal terms, in fact, the insurance policy typically has a glossary to help the policyholder understand the meaning of “insurance terms.”
What may be even more confusing is the misinformation about life insurance and the myths that evolve as a result of consumers and people in the industry attempting to simplify something that is not simple. Not because it’s difficult to understand, but because insurance applies to different people differently. The following is a list of myths regarding life insurance and how they are debunked.
Single People Don’t Need to Buy Life Insurance
Regretfully, you cannot bury your cousin Sid in the backyard like you buried your Collie. When someone dies, there is a cost to burying or cremating their body. If you decide not to purchase life insurance, in many cases your friends or relatives will have to pool their resources to pay for your disposal. Not because it’s the law, but because it’s the right thing to do. Also, if a friend or relative has co-signed or otherwise guaranteed a debt for you, when you die they become liable. By having insurance in place, your final expenses and funeral or cremation costs can be paid by your life insurance, rather than a friend or relative.
I Have Plenty of Life Insurance through My Employer
For most employees, an employer-sponsored life insurance policy is only good while you are employed with the company. In most cases, if you choose to leave or retire, or you are let go, your life insurance will be cancelled, and then you will be forced to purchase coverage on your own. If you are not healthy or have gotten older, your cost of insurance will be substantially higher if you can get a policy at all. Typically, employer-sponsored life insurance is a multiple of your compensation, and that is generally not enough to take care of a family after you’re gone.
I Have Enough Cash on Hand to Leave to My Family
This is doubtful. Yes, you may have enough cash to pay for a funeral or cremation, but what about income replacement, mortgage payments, college tuition, and debts? Most people who have a mortgage and a family to support earn about $100,000 a year and still live paycheck to paycheck. It’s likely your family will need about $750,000 to pay off the mortgage and other debt, send the kids to a state college, and replace your income for even a few years. And even if you have a lot of cash now, what makes you think you won’t have to spend all or some of it in the future? Sometimes, bad things happen to good people, so it’s better not to take the chance.
Always Buy Term and Invest the Rest
This may not be the best advice, and you are not likely to hear this from a licensed insurance agent or financial planner. Typically, over the long run, term insurance can end up costing more than permanent insurance, especially if you live to be 90 or older. Permanent insurance is permanent, and term insurance is temporary. Believe it or not, people do lose investment value when the market takes a turn for the worse. Also, permanent insurance can be paid up, which is never the case for term. Term insurance is great for young adults who’ve accumulated a lot of debt, but for many people, permanent insurance will be the better option when they are seniors.
You Only Need to Insure the Breadwinners in a Household
No one wants to think about it, but sometimes children die. When they do, and you are grieving, the last thing you want to be concerned with is how you are going to pay for a funeral. Adding the children to a breadwinner’s life insurance policy is inexpensive and very easy to do. Most life insurers will allow you to purchase a CTR (child term rider) that covers all the children in the household and any that may be added by adoption or birth in the future.
My Church will take Care of My Burial
In some cases, this may be true. Many congregations are certainly willing to band together and take care of funeral expenses for a long-time member but why would you want to leave the burden on the church when you can easily and affordably take care of it beforehand? It’s naïve to believe you can join a church and then expect the members to take care of a $10,000 funeral a year later. Actually, it’s quite selfish.
I’ve got a Chronic Illness and Won’t Get Approved
Unfortunately, this myth prevents many people from attempting to buy life insurance. They don’t want to complete an application, pay the down payment, undergo a medical exam, and then find out that they are uninsurable because of a chronic illness. However, there are many insurance companies that offer “guaranteed issue” insurance policies. These are policies where the application does not have medical questions, and the insurer doesn’t require a medical exam. There are a few drawbacks and rightly so since the insurance company is accepting an unknown risk.
> The cost of insurance is higher than a standard life insurance policy.
> The company usually puts a lower cap on coverage, usually about $25,000.
>There is a two or three year waiting period before the company will pay the death benefit if you die of natural causes. They will pay the full benefit from day one if you die from accidental causes.
On the upside, guaranteed issue policies are whole life insurance and guaranteed to pay as long as the periodic premium is paid (only for accidental death during the waiting period), the premium will remain the same throughout the life of the policy, and the insurer cannot cancel as long as the periodic premium is paid. Since they are whole life policies, they could build cash value over time that the policyholder can access it through a policy loan (for any reason).
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In my 20+ years as an independent life and disability insurance broker, I have personally assisted thousands of clients with their life and disability insurance needs. Being independent, I represent many highly-rated insurance companies and, because I am not beholden to any one insurance company, my focus is to find the right company and policy for each individual client. I believe that when people shop for insurance (or anything else, for that matter) on the Internet, they are looking for a simple, non-intrusive, non-pressure method of doing so. I strive to treat my prospective clients with the utmost respect and I believe an educated prospect can make the right decision without sales pressure. Please feel free to contact me at your convenience.