Truthful Answers to 21 Myths About Life Insurance
Myths About Life Insurance
The world of life insurance is filled with many myths that prevent people from taking advantage of the benefit of having a secure future. Doing your research and getting the service of a reputable and experienced professional agent can give you the right information that you need.
Life insurance has lots of complicated terms that require understanding and proper knowledge to get the best coverage for your future needs. There is a considerable gap between the United States population and the number of people with current life insurance plans. According to statistics from one of the leading research companies LIMRA, there are more than 150 million people in America with no insurance coverage. Also, even families with a life insurance plan may not have enough coverage to provide financial security in case of the provider’s untimely demise.
Why is this gap continuously increasing despite insurers increasing online visibility? One of the main reasons, according to professionals, is misinformation brought about by common myths about life insurance policies. The following are widespread myths and the truth about it that you need to know.
Myth 1: Life Insurance Cost too Much
Most US citizens perceive life insurance plans as added expenses, and 80 percent of the population overestimates the cost according to the study of LIMRA in 2015. The truth is the price of premium varies according to an individual’s current health status and age. For instance, if you are younger with no underlying health condition, you can begin with a very affordable monthly premium.
According to the same survey, 20 percent of participants thought they needed to pay around 1,000 dollars a year for 250,000 dollars coverage for a 30-year-old healthy individual. The truth is that most insurance coverage with the same condition only cost 200 dollars a year or 16 dollars monthly premium.
Monthly premiums that you need to pay depend on several factors like health condition, age, and the result of the underwriting process. It is good to ask an expert agent or get a quote from a reputable insurance provider from their website to determine how affordable a life insurance policy is.
Myth 2: Most LI Coverage only Covers Death Benefits
Not all life insurance policies only offer death benefits. It depends on the package or plan that you will get. There are life insurance policies that can provide both death benefits and living benefits. Meaning, insured can take advantage of their insurance coverage throughout their lifetime. For instance, it is one way to delay social security. It is essential for couples so that they can decrease the chances of outliving their income. Older individuals can start getting benefits from 62 to 70 years old. Delaying it beyond 62 years of age can increase the initial benefit and income, especially for retirees who live longer than ordinary people during their retirement period.
Also, beneficiaries can inherit the Social Security benefits from their spouse who passes away. In case the amount is higher than your spouse is currently getting, delaying the benefit can prolong the survivor’s benefit. The cash value earned from insurance can generate income while deferring the initial claim from Social Security.
Read our Post “Permanent Life Insurance or Term: What’s the Best Future Investment?” To learn more
Myth 3: Life Insurance Company Rating is not important
As you search for the best insurer, one must not take financial ratings given by independent reliable rating institutions. High ratings mean that the insurers can pay off all death benefits in the future after untimely demise. The best independent rating institutions are Moody’s and A.M. Best. Each rating company has its own set of guidelines to check the strength of different insurance providers. Take note that an insurance provider may get different ratings from each rating institution. It is better not to assume that a company with a high rating from just one institution is the best choice.
Myth 4: Premiums from Life Insurance are Tax Deductible
The truth is that premium for personal life insurance is not tax-deductible. This exception can happen in the policyholder’s own business, and the policy is purchased for asset protection. Although premium is not tax deductibles, the policy’s many disadvantages like tax-free death benefits and cash value from the policy are tax-deferred. Also, distribution in partial withdrawals, loans, dividends, and surrenders is non-taxable according to the total premium paid. One can benefit from tax-free benefits in terminal illness and avoid paying high taxes upon your retirement.
Read our Post “Is Life Insurance Taxable?” To Learn More
Myth 5: Company Insurance Coverage is Enough
Companies are offering group life insurance for their employees as part of the benefit. The usual coverage is two times the employee’s basic salary, and you have the liberty to get additional coverage that is 4 to 6 times the base salary. For younger adults with limited financial obligations, group policy is enough. However, it is vital to reassess your needs and financial condition every year to update your life insurance policy.
Once you leave your company, then you will also lose the life insurance policy. You can only have the policy if it offers a conversion privilege. When it happens, you can always get an affordable life insurance package if you are in good shape.
Myth 6: Healthcare Benefits are not included in Life Insurance
Today, the good thing about getting a life insurance plan is that many insurers are now upgrading and offering different types of riders. For example, you can use the cash value f the death benefits for healthcare needs. Also, some riders are created for chronic s that require lifelong care and maintenance.
With chronic illness riders, it will add up to the death benefit if an illness does not occur. It is a “win-win” benefit for policyholders because a cash value can pay for any healthcare cost.
Myth 7: Stay at Home Parents does not need any Life Insurance
If you are staying at home, it is not true that you do not need any life insurance. Being a stay at home parent means that you significantly contribute to the family’s welfare by taking care of the family. In case of your unforeseen death, the spouse needs to take care of the children and other older relatives in the house. The money from your life insurance coverage can be used to hire a babysitter, enroll kids to a daycare center, or send old parents to a nursing care facility.
A stay at home parent has an equivalent salary of 112,000 dollars a year. Even if you are not providing non-monetary benefits to your family, your contribution must be given importance.
Myth 8: Waiting game for Underwriting Process is very long
Gone are the days when you need to wait for months before knowing the final verdict for your life insurance application. Although you still require to undergo an underwriting process for a permanent life insurance plan, many insurers nowadays are trying to accelerate the entire process. There is an instant issue tern life plan that can offer a policy in minutes. You need to complete a health declaration form online and disclose your current health status. An experienced agent will help you go through the entire process.
Today, insurance providers use accelerated underwriting process using a mathematical model to immediately predict your class based on the data and other public records. If you are young and in good health condition, you can acquire a life insurance plan in less than two weeks.
Myth 9: Life Insurance is Only Useful When You Pass Away
Term life insurance is devised to safeguard your mortality risk entirely. It is not an investment product. Term insurance, just like other insurance (home, health, or auto), the disbursement will not take place if there is no insurance claim within the period. Should something terrible happen to you, this is the most economical way to lighten mortality risk and guarantee your family’s financial security. If you fear not getting your money back if nothing bad happens, you should get return-of-premium (ROP) for term life insurance. It is to assure you that your premiums rendered will surely return if there is no claim. ROP terms have a money-back guarantee, but they are typically more costly than a regular term.
Myth 10: Life Insurance is for the Old and Weak
Life insurance extends economic security for your family when you die. Availing insurance has no connection to your age and health status. A youthful person in good shape can die by an accident, which has nothing to do with old age or sickness. You probably know one or two persons who mourned a friend’s accidental death. Death can come unexpected, so it is important to leave something behind for your dependents. Further, if you avail of life insurance while you are young and healthy, you can seal in lower premiums because you have a lower mortality risk. If you are under the age of 65, you can change your term life insurance to permanent life insurance without the need to further underwrite around the level term period.
Myth 11: PMI is a Life Insurance Policy
When someone buys a new house and checks out mortgages, they probably encounter the words Private Mortgage Insurance or PMI. Many assume that PMI is life insurance, but it is not. If someone purchases a house and makes a partial payment of under 20% of the house’s real price, PMI is demanded. PMI is a type of coverage that protects the mortgagee from potential loss should the house-purchaser fail to fulfill the mortgage obligations.
While PMI is not a life insurance policy, life insurance is a wise approach to securing your family’s financial protection against failing to compensate the mortgage should you die unexpectedly. Life insurance coverage is assessed according to your estimated income, mortgage, and the length of time you should reimburse. Should you die suddenly, your loved ones will surely suffer from mortgage payments and other loans. It is all possible when you avail of life insurance, which covers mortgage balance.
Myth 12: Sick People are Banned from Availing a Life Insurance
Individuals who have long-term illnesses might be instinctively presuming that they are not qualified for life insurance. While one’s health is a deciding factor for identifying a premium rate, a sick person can still acquire a life insurance policy. You must know, however, that insurers will most likely offer a more costly premium. There are insurance policies that do not need medical assessment, such as guaranteed issue life insurance. Anyone can avail of this policy without paying attention to their health status. Guaranteed issue insurance is normally a more costly policy that might require to pay more premium, more significant than the death benefit. Another crucial factor for insurance application if you are someone with a chronic illness is timing. If you make your insurance application immediately after a medical diagnosis, your application might be turned down. However, if you can prove that you underwent the necessary medical interventions, your application can be accepted.
Moreover, raising your coverage without extra underwriting is not a problem if you are under an existing policy. From a term life insurance, you can turn a part or all of it to permanent insurance. A surety can be raised to a specific sum without supplemental underwriting when offered by policies.
Myth 13: Term Life Insurance Cannot Be Converted to A Permanent Insurance
Despite one’s health status, term conversion is always an option. You can turn part or the entire term insurance into permanent insurance in the absence of supplementary underwriting. Permanent life insurance encloses indexed universal life, guaranteed universal life, variable life insurance, and whole life insurance. A build-in term conversion option is available for many policies. Let’s say you availed of a term life insurance to secure your children’s education if something terrible happens to you. Now that they are grown adults, you still want them to be covered by insurance policy all through your old age. You can turn your term life to permanent insurance. Because no further underwriting is needed and gives less expensive premiums than buying new permanent insurance, this is a great option. The conversion choice typically has an age restriction, so it is essential to talk about this with your broker early on.
Myth 14: Life Insurance is Only for Those Who Have Young Dependents
Your insurance can aid you in many ways across your life stages. When your children become adults, your insurance is still useful in retirement, paying debts, funeral costs, and a lot more. Once you retire, your insurance may come as an extra income. In case your retirement income is derailed, insurance proceeds can lighten this situation. You can use your life plan policy as a cash reserve when equity investments are less profitable as expected. If in your early retirement, the investment returns are bad, cash withdrawals and policy loans can help you produce additional revenue. It allows you to save the 401(k) or IRA portfolio you invested in the capital market. When your stocks continue to be whole, you gain full advantage from a positive return of investment.
Myth 15: An Investment is Better than a Life Insurance Policy
Life insurance can give you more benefits than an investment like bond funds and holdings. One advantage is that life insurance gets a better tax treatment than an investment vehicle. Life insurance has a tax-free death benefit. Within the insurance policy, the build-up of the surrender value is tax-deferred. Usually, one can pull out their present value untaxed as far as the cost basis. It is preferable for someone in the upper tax brackets and has exhausted every other tax-reduced alternative like HSA, IRA, and 401k. Another advantage of life insurance is it has fewer risks than an investment vehicle. Permanent life insurance typically involves a policy where there is an insured minimum return. Since your cash value is warranted, it will not fall even when there is a market decline. Your cash value might even rise through the promised sum. Finally, an insurance policy can muster one’s investment portfolio. Rather than a sheer stock market investment, a life insurance policy makes a person aware of their own mortality risk.
Myth 16: A Life Insurance Purchase Requires Transaction with “Brick and Mortar” Agents
Life insurance is conventionally purchased via “brick-and-mortar” brokers or finance experts. With the fast-moving technological advancements, the number of people turning to the internet for business and data continues to grow. There are times you can’t be bothered to head to an insurance office, or you might feel forced to availing the insurance on the spot because there’s the agent. Rather than the traditional face-to-face transaction with an agent, you can now buy a life insurance policy over the phone or the internet. There are life insurance agencies that provide online proceedings. An insurance broker can accommodate you online toward a better grasp of life insurance. They can guide you by estimating your insurance needs until the official kick-off of your life insurance policy. Purchasing life insurance can now be made in the comfort of your home through the help of the internet, without falling short of expert financial advice.
Myth 17: Term Insurance is More Preferable than Permanent Insurance
A term life insurance appears less costly and uncomplicated in contrast with permanent life insurance. Still, permanent insurance provides many benefits that are important for you to know for your financial plans. A permanent policy has a guaranteed rate for expanding your cash value (guaranteed universal life or whole life insurance). It can also increase your value by stock market returns or index growth cap like the S&P 500. In case you need to augment your profit, you can always draw from the cash value. You can also request a loan according to your insurance policy, free of tax all through a cost basis, contingent on a much lower interest than credit card rates.
Moreover, whole life insurance presents stable premiums and cash value increase, which provides for long-term aims. Other permanent insurance extends amenable premium payment. In case you need your wages for different goals, you can adjust the pay for a lesser amount or skip a remittance. Permanent insurance is also more preferable for someone concerned about cash value element and death benefit.
Read our Post “Permanent Life Insurance or Term: What’s the Best Future Investment” To learn more
Myth 18: The Death Benefit Awarded to Your Dependents Has Outstanding Tax
If you die insured, your beneficiary obtains the death benefit from your life insurance. The Internal Revenue Service declared that insurance death benefits received by a beneficiary usually are free of tax. It indicates that your beneficiary will not pay tax for the death benefit. The death benefit must be received in a lump sum because if it comes in installment, each payout will be taxed like the ordinary income. The capital sum of death benefit is free of tax, but installment parts have an interest. Through the untaxed death benefit, your beneficiaries are financially secured. The money can be used for burial costs, college fees, and unpaid loans.
Read our Post “Is Life Insurance Taxable?” To Learn More
Myth 19: Buying Insurance Straight from the Insurance Firm is always Better
As mentioned before, there are growing chances of buying a simple life policy like term life insurance straight from the insurance firms. Even so, buying insurance policy right from the companies may not always give you the best contracts. Some term life insurance is a simplified issue. It means that you don’t need extra underwriting, and you are just required to answer some questions for you to avail of the insurance. It appears easy and uncomplicated, but this may not be the best term for you if you are healthy and young. During insurance firms’ policy pricing, they fix the average price from assessing individuals in every health status. If you buy the simplified issue life insurance over the internet, you miss out on policy premiums’ coarseness, which allows healthier individuals to avail less costly payments.
Moreover, a broker will elaborate on everything you need to know about the insurance policy. They can help you find out the precise life insurance coverage you need and offer you the most appropriate estimate according to your health status. An online firm merges the best of both worlds by supporting the non-invasiveness and ease that the internet brings and the finance specialist’s expert-advise. You can look into life insurance schemes in your own time, obtain an estimate without giving out your info, and receive guidance by online insurance brokers if you have clarifications.
Myth 20: You Need to Buy Two Insurance Policies for You and Your Spouse
If you are married, there is an insurance policy for you called survivorship life insurance. This policy covers two married people within one life insurance. A survivorship insurance rewards death benefit when one of the two couples dies. Survivorship insurance is typically more affordable than two separate insurance, so it is a good option to avail of the best insurance for married people. Survivorship insurance offers a lot of advantages, such as protecting your properties. With the untaxed death benefit that your beneficiary will obtain, they can settle property taxes, holding your property untouched. Further, survivorship insurance can help carry on a business venture. In case one of the business affiliates dies, insurance money can be used for keeping the business funded, especially if it is a small one.
Myth 21: Insurance Coverage Should be Larger for Husbands
According to a survey, wives are notably more unlikely to avail of life insurance compared to husbands; wives who have insurance policies have remarkably smaller coverage in contrast with their husbands. This phenomenon is linked with the tendency to underrate the wives’ family contribution. A lot of factors are at play during an insurance coverage decision. Aside from salary, elements like housekeeping, daycare, and eldercare would put more financial burden on the family’s finances. Further, several insurance policies have a living benefit rider that covers terminal diseases. This benefit rider is appealing for wives since they are the ones who typically look after the sick husband. In case the husband dies, and the wife turns ill, the life insurance benefit can aid the hospitalization costs of the wife.
About Coach B.
After starting his financial career with Phoenix Home Life Insurance Company back in 1992, Scott decided he wanted to provide people with an easier and more enjoyable way to buy life insurance. That was the start of Coach B. Life Insurance, whose mission is to be transparent, honest, and helpful to customers — without ever bugging or pushing them.
In the years since then, he has worked tirelessly to improve the process of shopping for insurance. His goal is to make sure that everyone who comes to Coach B. — whether they end up buying a policy or not — has the best possible experience.
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