Less than half of Americans are either “not clear” or “somewhat clear” about how life insurance works, and only 30% of us with life insurance have sufficient coverage.
That’s why we’re here. In this post, we’re going to lift the fog around how life insurance works by debunking 7 myths and misconceptions about life insurance policies:
Myth #1: Employer-based Life Insurance is Enough
If you’re getting group life insurance through your employer, you’re probably only getting about one-to-two times your salary. Your loved ones probably need support than that. Depending on whom you ask, your life insurance policy should be about five-to-ten times your salary, sometimes even more.
Also, employer-based life insurance usually only covers you while you’re actually working for your employer. If you lose or leave your job, you may lose the coverage along with it. By buying an individual plan, you won’t have to worry about your policy isn’t tied to your employment.
Myth #2: Life Insurance Only Covers Funeral and Burial Costs
This is true of final expense insurance, which is a type of whole life insurance policy that provides a death benefit to cover end-of-life costs. However, most policies cover way more than funeral and burial costs.
In our guide to life insurance policies, you’ll discover that life insurance policies can:
- Pay off debts
- Pay for college
- Help maintain a standard of living
- Build wealth
- Pay for estate tax
- And so much more
Myth #3: My Beneficiaries Will Pay Income Taxes on Life Insurance
Life insurance benefits are generally income-tax free, meaning that your beneficiaries don’t have to report them on their tax returns. However, if your policy has accrued interest on top of the policy amount, they may have to pay taxes on that.
Myth 4: I’m Young and Healthy, So I Don’t Need Life Insurance
This may be the case, but premiums increase by 4.5-9% each year you delay purchasing life insurance. For this reason, people regret not buying a policy at a younger age.
You also have to consider your future insurability. You may be young and healthy now, but life happens. If you develop a health condition later in life before buying life insurance, your access to an affordable plan may be limited.
Myth 5: I’m Single With No Dependents, So I Don’t Need Life Insurance
Your death can have a negative financial impact on your loved ones in other ways. If a parent or guardian co-signed on your mortgage or a student loan, life insurance can help protect them from assuming your debt.
It also helps to think about the other people you can help in your life. If there’s a non-profit or a charity that you’re passionate about, you can assign some of your death benefit to it. You can also assign your death benefit to a parent, sibling, niece, nephew, or anyone else that you care about.
Myth 6: I Should Buy Term Life Insurance and Invest the Difference
This myth is a little trickier due to the differences in term and permanent life insurance. Term life premiums get a lot higher as you get older. We usually recommend converting to a permanent plan at some point in your lifetime.
There’s also the risk of non-insurability to think about. If you’re depending on life insurance to cover your estate taxes, but develop a health condition that limits your policy options, that could put you in a troublesome situation. With permanent life insurance, this isn’t a problem you’ll have to worry about.
Myth #7: Only Breadwinners Need Life Insurance
Two words: child care.
Stay at home parents are far more valuable than many of us realize, and the cost of replacing them is steep.
These are just a few of the myths surrounding how life insurance works.
If you’re still wondering whether you need life insurance, answer this question: Do you have enough assets to cover the expenses of you and your dependents if you were to pass away? If the answer is no, or if you’re uncertain, then you should consider getting coverage.
We can help you choose a policy that best fits your needs. Apply for life insurance with Tomorrow today.
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