Buying life insurance can be an important decision. You have to decide if the cost of life insurance now will be the right choice for your financial future.
Life insurance serves as a risk management tool. A policy can provide financial security and alleviate burdens your family members or beneficiaries may inherit after your passing, like funeral costs, debt, education and medical expenses. You can also leverage your life insurance policy as a wealth-building tool.
However, myths about life insurance can deter potential shoppers from purchasing coverage, missing out on its valuable features. So, we're here to debunk some of the common myths to help you determine if you're the right candidate for a life insurance policy (spoiler: most people are).
Myth 1: Life insurance is expensive
Many shoppers assume life insurance policies are expensive and out of their budget. While permanent life insurance can be costly, a term life insurance policy is more affordable.
For a $1 million, 20-year policy, a 30-year-old female can expect to pay approximately $50 per month. At the same time, a 30-year-old male may pay $60 per month[1]. Life insurance costs vary significantly based on age, gender and health status. Online calculators can often provide a good estimate.
Myth 2: Life insurance is only for funeral and burial related costs
One of the biggest life insurance myths is that it is only useful for funeral costs. Your policy is also a financial safety net if you pass away and can no longer provide for your family. This is particularly important if you have dependents and are the primary breadwinner.
Your beneficiaries can use your death benefit to pay the remaining mortgage or your children's college education. With a permanent life insurance's cash value component, your policy can be used as an investment vehicle to leave a legacy for your inheritors.
Myth 4: Life insurance is only for those with dependents
If you're single with no children, you may still benefit from purchasing life insurance. Life insurance may be helpful if you have outstanding debts or a business partner that needs financial support to run the company after you pass away. You can also use your policy to build a charitable trust and donate your assets.
Myth 5: My group life insurance through work is enough
While your employer may offer life insurance benefits, you may need additional coverage. Group policies have limited coverage amounts and options. For example, many employers only offer term life insurance.
Additionally, you may lose that coverage after you leave your job.
Myth 7: I'm too young to have life insurance
If you're in your early 20s or 30s, you may find little reason to have life insurance coverage, especially if you don't have dependents. However, purchasing life insurance while you're young is the best time to do so. Generally speaking, the younger you, the policyholder, are the cheaper your life insurance premiums will be, given you don't have significant health issues.
Having insurance may be helpful if your parents are cosigners on your student or personal loans. A life insurance policy can pay off your outstanding debts if you pass away, so your parents won't have to.
Myth 8: I am too old to buy life insurance coverage
If you're over 60, your increased risk of having or developing age-related health issues may result in insurance companies charging you more for a policy. However, finding affordable coverage is possible.
Shopping around for life insurance quotes can help you find insurance providers that offer the best rate for your age range and health classification.
Myth 9: My preexisting condition will disqualify me from life insurance coverage
Most life insurance companies won't deny your application if you have a preexisting condition. However, your premiums may be more expensive depending on the severity of your condition.
However, some life insurance companies have friendly underwriting standards for particular conditions, even if it's severe, like diabetes, heart conditions or cancer. If you have a preexisting condition, compare rates to find an insurance company with the best prices for your health class.
Additionally, once you've accumulated enough cash value, you can use it to pay your premiums or make withdrawals and borrow from your account. Speak to a financial advisor to examine your options and determine if a life insurance policy is a suitable investment strategy for you.
Myth 11: Permanent life insurance is only for the wealthy
While a term policy is best for most people, permanent life insurance isn't exclusively for affluent consumers. If your budget can afford a permanent life policy, it may make sense for your financial plan.
A whole life or universal life insurance policy may be an option if you max out other tax-favored investment options like your 401(k) and IRAs.
Another reason you may consider a permanent life insurance policy is if you have dependents who need life long-care, like a child with a disability. In that case, you can set up a trust policy and appoint a trustee to manage your assets once you pass away.
Myth 12: My life insurance coverage only needs to be twice my annual salary
In addition to paying for your medical and final expenses, your family members may count on your life insurance policy to pay off the mortgage or send your children to college.
You want to ensure you have enough coverage so your beneficiaries can meet their financial needs and pay off your debts. Experts recommend having six to ten times a year's salary of life insurance coverage.
FAQs — Misconceptions about life insurance
Here are some frequently asked questions about life insurance.