6 Biggest Myths of Life Insurance

Life insurance may be one of the most important financial products we can buy in our lifetime, and we need to understand the details. Yet, there are numerous misconceptions around that can cloud our understanding of this type of insurance. The six biggest myths of life insurance are:

Everybody Needs Life Insurance

Not everyone needs life insurance, although it is a good idea for the majority of people. If you do not have any dependents, have an income high enough to pay off your debts after your death and for your final expenses, and you do not wish to leave any money to a charitable cause, you may not need life insurance. Business owners who have enough assets to cover their interests in the business so their business partners do not sink also do not require life insurance. If you have dependents at home that will need to be cared for after your death, such as minor children, a spouse, or aging parent, life insurance is a financial product you should look into.

Only the Major Financial Contributor Needs Life Insurance

While the loss of the major breadwinner in a household will cause financial upheaval, the homemaker also provides invaluable contributions to a family. If something happens to the person who does the cleaning and the childcare, replacement services will have to be obtained and can be expensive. If the homemaker is covered with life insurance, the costs of hiring these alternate caregivers will be easier to navigate.

Employer Sponsored Life Insurance Coverage is Enough

Most life insurance policies offered through an employer are term life policies that may provide adequate benefits in the event of your death. However, if you ever leave that job, you will not have access to that policy any longer. If this is the only insurance coverage you have, you could find yourself stuck paying a higher premium for insurance if you wait until you are older or when your health decreases to get another policy.

Life Insurance Policies do not Need to be Maintained

Life insurance is not a product you purchase and just forget about. Just as other financial products you maintain, you should keep in touch with the performance of your policy. Every few years or so, check to see if you can get the same coverage for less. Also, keep your beneficiaries and covered dependents current, making the appropriate changes after marriages, divorces, births, and adoptions.

Term Life Insurance is Better Than Whole Life Insurance

A person’s specific situation will determine whether term or whole life insurance is better for them. For instance, a person who has a limited amount of money to contribute to an insurance policy could probably benefit more from a term life insurance policy; especially if when the term expires they might still be relatively young and able to renew the policy for a reasonable amount.

Whole life insurance is more expensive because it has an investment portion built into the premium cost. Individuals who may have a difficult time qualifying for life insurance if they have to perform another medical exam down the road may be better covered with a whole life insurance policy where they are guaranteed lifetime benefits if they keep up the premiums.

Benefits Must Cover a Lifetime of Income

The exact amount of life insurance needed by any person is individual and should be examined on a case-by-case basis. Life insurance should provide a death benefit that can cover the final expenses of the insured and also any outstanding debt that they will have at the time of their death that their dependents will be responsible for. For example, if you have an outstanding mortgage, you may want to make sure your life insurance policy can cover this. Another component to how much insurance to carry depends on whether or not there are minor children or other dependents that will survive you and how much financial support they will need. When you sit down and work out the specifics of these details, you may find that you can carry much less coverage than you originally thought.

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