5 Life Insurance Myths – Debunking Fact vs Fiction
As an insurance broker, I have heard many misconceptions about life insurance over the years. Part of the reason life insurance isn’t always well understood is that the topic isn’t much fun. The truth is life insurance is an essential part of financial planning for individuals and families of all ages and circumstances. I will debunk five common myths about life insurance and provide information to help you make informed decisions about protecting your loved ones.
Life Insurance 101
Life insurance is a contract between an individual and an insurance company. The individual pays a premium, and in exchange, the insurance company provides a death benefit to the individual’s beneficiaries in the event of their death. The death benefit can be used to cover expenses such as funeral costs, outstanding debts, and ongoing living expenses for the individual’s family. There are two main types of life insurance: whole life insurance and term life insurance.
Whole life insurance is a permanent policy that provides coverage for the individual’s entire life as long as the premiums are paid. The policy also has a cash value component that grows over time. Term life insurance covers a specific period, such as 10, 20, or 30 years.
Myth #1: Life Insurance is Only for the Elderly
One of the most common myths about life insurance is that it is only necessary for individuals who are elderly or in poor health. However, the reality is that anyone can benefit from life insurance, regardless of age or health status. In fact, we often recommend getting life insurance while you’re young and healthy so you can lock in a lower rate to keep your premium costs down. In the event of an unexpected death, the death benefit can be used to pay off debts, cover living expenses, and provide for dependents.
Myth #2: Only the Income Earner Needs Life Insurance
Another common misconception is that only the primary income earner in a household needs life insurance. However, this is not the case. If a stay-at-home parent were to pass away, the surviving parent would need to cover the costs of childcare and household duties without the help of their partner. Life insurance can provide a financial safety net to cover these expenses and ensure that the surviving parent can continue to support their family.
Myth #3: Life Insurance for Kids Isn’t Necessary
Some parents may believe that life insurance for children is unnecessary, as children do not have a source of income to protect. However, life insurance for kids can provide financial protection in the event of an unexpected death. The death benefit can be used to cover funeral expenses and provide financial support for the family during a difficult time. Additionally, purchasing a life insurance policy for a child can ensure that they have access to affordable life insurance coverage as they grow older. The younger you are, the cheaper the insurance premium rate you can lock in. In addition, the child will have coverage for any debilitating illnesses they may contract later on in life by having a policy in place beforehand.
Myth #4: Mortgage Life Insurance through the Bank is Enough to Cover Your Family’s Expenses
Many homeowners purchase mortgage life insurance, which is designed to pay off their remaining mortgage balance if they pass away. While this type of insurance can provide peace of mind, it is not enough to cover all of a family’s expenses in the event of a death. Mortgage insurance purchased through the bank, or financial lender only covers the outstanding mortgage balance and does not provide additional funds for living expenses or other debts. A comprehensive life insurance policy can provide a larger death benefit that can be used to cover a wide range of expenses.
Myth #5: Term Life Insurance is All I Need
While term life insurance can be a good option for individuals who need coverage for a specific period, it may not be enough for everyone. Term life insurance has its place, particularly for financial obligations with a shelf life, like a loan. What many households find, however, is that the need for life insurance is ongoing. When an existing term policy reaches the end of its term, they wish there was an affordable way to continue coverage. Whole life insurance provides permanent coverage and a cash value component that can be used for various purposes, such as paying off debts or funding retirement. Complimenting a term policy with a whole life policy may be an option — or maybe a customized solution is in order.
Life Insurance Resources and Information
If you are considering purchasing life insurance, many resources are available to help you make informed decisions. Speak with an experienced insurance broker who can help you understand your options and select the right policy for your needs.
Life insurance is essential to financial planning for individuals and families of all ages and circumstances. Don’t let myths and misconceptions prevent you from protecting your loved ones with the necessary coverage. Speak with our experienced insurance advisors, do your research, and select the right policy to provide financial security and peace of mind for you and your family.