Life insurance is a straightforward concept: Buy a policy and pay a relatively small premium, and the beneficiary will get a large cash benefit if the insured dies while the policy is in force.
But there are many variations on this basic theme - and just as many misconceptions about how life insurance works. Here are some of the most common myths.
I already have enough life insurance through my job.
Many people believe they have coverage from work. But in many cases, the amount of coverage from a workplace Group Policy is not nearly enough to provide meaningful protection for the employees family.
The reason: Section 7702 of the tax code, which governs employer-paid group life insurance benefits, only allows employers to deduct premiums for a death benefit of $50,000 or less. That's only a fraction of the true need for most working families.
Many Financial experts recommend owning 10 and 12 times ones salary or more - especially if you are relatively young. The reason: if the unthinkable happens, the family will need that life insurance to replace many years of a breadwinners salary.
Furthermore, if you get sick and lose your job, you may lose your life insurance just when you need it most. And you may not be able to qualify for life insurance then.
Owning your own policy ensures that you can select the amount of protection that suits your needs, and that your policy follows you even if you change jobs or leave the workforce. If you have coverage at work, you may want to explore owning additional coverage for yourself and your family.
I'm young and healthy and don't need it.
The best time to buy life insurance is when you are young and in good health. Accident and injury, not illness, are the leading cause of death for Americans under age 44, and the fourth leading cause of death for Americans of all ages, according to the Centers for Disease Control.
These deaths include:
- Car accident
- Accidental drug overdoses, including prescription drug overdoses
- Medical error
- Accidental shooting
- Electric shock
- Traumatic brain injury
Any of these events can strike the young and healthy at any time. More than 235,000 Americans died of injuries and accidents in 2016, according to the CDC - 105,296 of them, or 43% were age 45 or younger.
I don't qualify for life insurance.
Medicine has improved a great deal in recent years - and life insurance underwriting has changed with it. You may still be able to qualify even if you have controllable diabetes, cancer (in remission, usually for 5 years or more), or if you smoke or are overweight, have high blood pressure or cholesterol.
Yes, you'll likely have to pay a higher premium, or settle for a lower amount of life insurance.
I can't afford it.
it's more affordable than you think. Some 80% of Americans vastly overestimate the cost of life insurance. According to LIMRA. Millennials overestimate the cost by 213%, and
Gen Xers by 119%.