Life Insurance Myths

MYTH NO. 1: I only need life insurance if I’m the primary breadwinner. Whether you bring home the largest paycheck in your household or a smaller one, your family relies on your income, and it would be missed if something were to happen to you. Even if you don’t work outside of the home, you probably need life insurance. Stay-at-home parents perform valuable services such as childcare, cooking, housecleaning and household management, which can be costly to replace.

MYTH NO. 3: I only need term life insurance. Term life insurance makes sense for many young families because their need for coverage is great and their budgets are often limited. But that doesn’t mean it’s the only type of insurance you should consider. Permanent insurance policies provide a death benefit as well as other unique features such as lifelong protection and the ability to accumulate cash values on a tax-deferred basis, similar to assets in most retirement-savings plans. You can access the cash values for important uses like a child’s education or a business opportunity. (Withdrawing or borrowing funds from your policy will reduce its cash value and death benefit if not repaid.) If these features appeal to you, it might make sense to buy a large face amount term policy, giving you the death benefit protection you need, and combine it with a smaller permanent policy. When your budget permits, you can gradually increase your permanent insurance coverage.

MYTH NO. 5: I don’t need life insurance once my children are self-supporting and my mortgage is paid off. Perhaps, but if you died today, your spouse would still be faced with daily living expenses. And what if your spouse outlived you by 10, 20 or even 30 years? Would your financial plans, without life insurance, enable your spouse to maintain the lifestyle the two of you have worked so hard to achieve?

MYTH NO. 7: I thought I would need life insurance to help pay estate taxes, but that’s no longer a concern. Even if you’re not currently subject to a federal estate-tax liability, there’s no guarantee that will always be true. Tax laws can change very quickly. But even if they don’t, there are many other reasons to maintain life insurance coverage later in life. When you die, life insurance can pay for things like state estate taxes, outstanding debts, probate costs and funeral arrangements, allowing your loved ones to focus on their grief and not concerns about money. It can also be used to equalize an estate among your heirs, or for business-succession purposes.

MYTH NO. 2: If I still need protection when the term policy ends, I can always renew the policy. Term life insurance is popular with young families, as it typically offers the greatest coverage for the lowest cost. Term insurance provides protection for a specific period of time (the “term”), and needs that will disappear over time, such as a mortgage or a child’s education. However, many families realize that even after the kids are grown and the mortgage is paid off, their need for insurance continues—to provide income for a surviving spouse, eliminate debts, pay taxes, etc. Because premium increases with age, renewing your policy when the term expires can be very expensive. Moreover, poor health may make renewal impossible.

MYTH NO. 4: I can get a better rate of return if I invest my money elsewhere. While the most important reason for any life insurance purchase is to provide protection for your family, permanent insurance policies provide you with the ability to accumulate cash values that grows over time and can be borrowed against or withdrawn.* And contrary to what many people believe, long-term rates of return on cash values are generally comparable to relatively low-risk investment products. Because understanding rates of return can be difficult, the best way to find the right solutions for your needs is with the help of an insurance professional.

MYTH NO. 6: I’ll have enough money saved by the time I die to pass something along to my children and grandchildren. Maybe that can be achieved through long hours on the job and prudent management of your family’s finances. But what if you don’t live long enough to achieve your wealth-creation goals? Or what if an extended downturn in the economy negatively impacts your investments? Life insurance can create an instant estate, allowing you to leave a legacy for future generations or to fund a favorite charity or cause.

MYTH NO. 8: Life insurance costs too much to buy when I’m older. While it’s true that life insurance costs more the older you get, that doesn’t necessarily mean that it’s out of your price range. For example, a healthy, non-smoking, 55-year-old man can buy a 20-year, $500,000 level-term policy for roughly $2,000 a year. For a healthy 55-year-old woman, the annual cost is about $1,500. So if you have an ongoing need for coverage, don’t assume that you can’t afford it. In most cases, an insurance professional can help you find a policy that fits your needs and budget.