7 Myths About Life Insurance Debunked
Dear Rich Lifer,
“Can you buy life insurance during a pandemic?”
This is a question a lot of people are asking right now. The short answer is yes.
In fact, now is actually one of the best times to shop for life insurance.
Because many people – including insurance companies – are following the CDC’s social distancing guidelines, in-person blood and urine tests, as well as weigh-ins are not possible.
This means insurance companies currently have fewer potential reasons to reject applicants for coverage.
“One in 5 U.S. companies have postponed or waived paramedical requirements,” says Catherine Theroux, director of public relations for LIMRA.
“To make it easier for consumers to apply for a policy under these unusual circumstances, more than a quarter of U.S. life insurers have expanded their automated underwriting practices,” says Theroux.
So, if you’ve been sitting on the fence wondering whether you should take out life insurance, now could be the perfect time to apply.
But before you do anything, it’s important to get your facts straight. There is a lot of misinformation online surrounding life insurance.
Today we’re going to debunk seven of the most common myths about life insurance.
Myth 1: You Don’t Need Life Insurance If You’re Single or Have No Dependents
Although many people take out life insurance to protect their spouse and children, it’s not the only use.
Life insurance proceeds can ease financial burdens after you pass like settle debts not discharged in death or avoid having to sell assets to pay off secured loans, like a first mortgage or home equity line of credit.
You can also protect beneficiaries outside your immediate family. For example, you can protect the financial interests of a business partner, an arrangement commonly known as key person insurance.
Life insurance proceeds often benefit immediate relations who don’t technically qualify as dependents, like adult children over age 18 or minors living full-time with a former spouse or domestic partner.
Just because you can’t or don’t claim any dependents on your income tax return doesn’t mean you have no one you can name as your beneficiary.
Myth 2: You Should Not Get Life Insurance If You’re a Stay-at-Home Parent
Insurance companies closely correlate your earning power with the value of your life. But that’s not to say that if you’re not working and you die, your death causes little or no financial strain.
If a stay-at-home parent with full-time child care and household responsibilities passes away, the financial burden this causes on the surviving spouse can be immense.
The survivor must find alternative child care, or else modify their work schedule, which could result in a loss of income. Plus, there’s the traumatic departure of a parent, and the parent’s absence itself, which can cause all kinds of secondary effects, which might require mental health counseling for the surviving children.
If you’re a stay-at-home parent, you probably don’t need as much life insurance coverage as a primary breadwinner, but don’t negate the impact your loss could cause.
Myth 3: Your Work Life Insurance Policy Is Good Enough
Employer-sponsored life insurance is a good supplement to an individual policy bought on the open market. But it’s rarely enough on its own.
More importantly, your work life insurance isn’t portable. So, if you change employers, you lose your insurance.
Plus, if you are a high-earner, most employer-sponsored policies only offer maximum death benefits of around $250,000-$500,000, which likely isn’t going to be enough to adequately replace your income.
Myth 4: Life Insurance Is a Waste of Money When You’re Young
The chances of you dying in your early 20s or 30s are pretty low. However, that doesn’t mean you should put off getting life insurance until you’re older or on the brink of any serious health issues.
Two reasons why you should consider life insurance when you’re young are cost and tragedy.
Life insurance premiums are significantly lower for young and healthy applicants. You’ll pay a lot less for a 30-year term policy at age 25 than at age 45.
Likewise, tragedy can happen at any time. So, if you’re a young family with a low income and years of mortgage and student loan payments ahead, it’s best to protect your beneficiaries should the unthinkable happen.
Myth 5: You Can’t Get Life Insurance With a Preexisting Health Condition
If you have a preexisting health condition, expect to pay more for life insurance than a perfectly healthy person of the same age. But, don’t expect to be uninsurable, and therefore not apply at all.
You can shop around using a comparison tool like PolicyGenius to compare your options. If you are declined coverage because of a result in your medical exam, try again, but limit your search to no-medical-exam coverage. There are some surprisingly generous plans reaching $1-2 million per policy, depending on the insurer.
Myth 6: Life Insurance Is Expensive for Older People
Since the likelihood of death increases with age, older applicants do pay more for life insurance. But retirees also usually have fewer financial obligations, like debts and dependents to look after, so your life insurance needs also decrease over time.
This helps older applicants in two ways: first, you reduce the coverage amount; second, you shorten the policy term. Both will lower your premiums. A lot of older policyholders take out life insurance simply to cover final expenses, like funeral and burial costs. These can be nice departing gifts to your heirs.
Myth 7: Saving and Investing Your Money Is Smarter
There’s a reason why we recommend you build an emergency fund, but it’s not to settle your debts or provide a financial cushion for your family if you die.
Emergency savings should really only be enough to cover 3-6 months worth of expenses should you lose your primary source of income. The same can be said for your investments, of course they’re important but you wouldn’t expect to cover the cost of a hospital stay or totaled car out of pocket.
There’s a reason we have health and car insurance – your life is no different. That said, every person’s circumstances are different. If you don’t have significant income or too many dependents, you might not need as much coverage as someone with a higher income and several dependents.
A good life insurance policy will offer peace of mind. Don’t let any of these myths dissuade you from making an informed decision.
To a richer life,
The Rich Life Roadmap Team