A Life Insurance and Annuities Resource

7 Myths About Life Insurance

Posted by Bill Bruce on Apr 26, 2018 8:06:45 AM

Over the years, you've probably heard stories about how many spiders the average person swallows in their sleep and have never thought twice about its validity. But is it true? Fortunately, no.  There is no evidence to support that you are eating seven spiders a year while sleeping. This well-known "statistic" is nothing more than a popular myth that someone invented years ago to terrorize anyone who has a fear of the 8-legged creatures. So, what are myths?Dictionary.com has a few different answers, but perhaps none more appropriate than this:

Myth /miTH/ noun:

An unproved or false collective belief that is used to justify a social institution.

Wow, that's quite the mouthful. Let's put it in simpler terms. A myth is just a theory that isn't supported by facts.

Now I know what you are thinking, "what does any of this have to do with life insurance?"

Myths can distort our views on anything, and these distortions aren't just limited to silly facts about eating spiders. The life insurance industry is also affected by these biases, which can misinform those trying to make significant financial decisions. The only way to accurately know what's right for you is by sorting fact from fiction, which is precisely why we created this e-book.

You are not alone.

 6 of 10 people

According to the Life Insurance and Market Research Association (LIMRA), six out of ten people hadn't bought life insurance because they didn't know what to buy or how much.

Myth #1: Life Insurance Isn't Affordable.

This myth is the most obvious reason not to buy life insurance. It makes perfect sense. What's the point of buying something you can't afford? Still, is life insurance really that expensive? Maybe not, according to a study conducted by LIMRA in 2016, the average person overestimates the price of life insurance by about three times its actual cost. It's incredible to think about really. Imagine going to the store to buy a gallon of milk and having it be roughly three times less than what you were expecting. That's a pretty nice surprise, right?

The pricing of life insurance essentially comes down to one thing, you. What are your needs? Are you looking for permanent coverage spanning the duration of your life, or are you looking for something temporary that can help replace your income? Other factors can also affect the overall cost of your coverage, including your age, health, family medical history, and gender.

Sometimes we think about life insurance and figure that there must be a hefty price tag associated with the protection, but, there isn't always. Just take a look at how affordable a term life policy for a 32-year old woman can be.1

1 dollar per day2

As mentioned above, the price depends on you. How much of a risk you are for the company determines how the rates are set. Someone who is younger with a clean bill of health will always receive a better rate than someone older with a medical history because the younger person is far less likely to die first. Don’t worry if you’re older though, there are policies out there for everyone.

Don't believe us? Shop around; you might be surprised.

Myth #2: Term Insurance Over Permanent Insurance, No Matter What.

You often see people compare these types of insurance like they are comparing apples to apples and those people couldn't be more wrong. The fact of the matter is that they aren't the same and therefore should not be compared the same way. Would you compare a luxury car to a sedan? Of course not, it wouldn't make sense.

Both policies were designed with a specific end-user in mind and are unique in their own way. The tricky part is determining which product is right for you. Let's go over a few of the pros and cons of both term and permanent life insurance.

Pros vs. Cons

Now determining which is best for you isn't as easy as looking at a pros and cons chart (although it would be nice if it were). The truth is that you should probably have a mix of both, as it gives you the most protection and flexibility.

For example, having a smaller permanent policy combined with an ample term policy is perfect if you want to protect your family from the potential financial crisis associated with the death of the primary wage earner. This strategy gives you the power to cover your family until your children are old enough to support themselves while leaving you with enough coverage to help with final expenses.

Myth #3: Don't Buy Life Insurance, Invest Instead.

This myth is an interesting one. Can you invest your money instead of buying life insurance and potentially make more? The brief answer is yes, but that's only a small piece of the overall picture.

One of the primary benefits of life insurance is the ability to pass along your money to the people that matter most to you. Moreover, unlike most investments, these funds are generally delivered to the named beneficiaries income tax-free.

Not convinced? Let's look at the immediate impact of buying a life insurance policy with a portion of your funds rather than investing them.2

What's the difference DAY 1 (3)

Immediate Protection.

If you bought life insurance and tragically died in an accident next month, your family would most likely receive a death benefit much greater than the amount in which you started. With that being said, we aren't saying that life insurance is better than investing. The point is there is a place for both and you should not overlook either of them when making decisions for your financial future.

Myth #4: Only a Breadwinner Needs to be Covered.

The first myth may have been the most obvious reason not to buy life insurance, but this one is the most unfortunate. This falsehood can be summed up with a classic phrase: you don't know how important something is until it's gone.

Thinking about our own death is hard enough, but thinking about losing a loved one is even harder. In a single income household, you often see one parent working while the other stays home to raise the children, which is a profession itself. So, what happens if that person dies? Who does their various jobs?

These are just some of the many hidden expenses of losing someone that isn't the "breadwinner."

  • Childcare
  • Cooking
  • Handling financials
  • Cleaning/maintaining the home
  • Running crucial errands

It may not seem like much at first, but all these things add up at the end. Sure, you might be able to handle most of this stuff yourself, but that requires a significant amount of time that you may not have.

Myth #5: It's Impossible to Qualify for Life Insurance.

We have now addressed the most unfortunate and reasonable myths, so why not talk about the least true? Qualifying for life insurance is not impossible by any means. There are products made for everyone, including "guaranteed issue" policies, which you can purchase regardless of your health.

These policies tend to be more cost prohibitive than typical coverage and will only guarantee a death benefit after a certain point, such as two years. This constraint doesn't always suggest the money is gone though, just that the company will refund any premiums and not pay the death benefit in the event the owner dies before a specified time.

There are also other various coverages out there that you can purchase, many of which are easy to qualify for under normal circumstances. If you want to learn more, we recommend getting in contact with your local representative.

Myth #6: Single People Without Children Don't Need Life Insurance.

You begin to notice a trend after you've seen enough advertisements for life insurance. “Family, loved ones, children, income replacement, and peace of mind”, are just a few of the phrases commonly used by companies advertising their products. Heck, we've said it more than enough ourselves, and that is because these people are the traditional owners. However, that doesn't mean life insurance is only for them.

If you are single with no children, here are a few questions you should ask yourself. Who pays for the funeral if anything happens to you? What about your parents, will they depend on you as they age?

It is likely that you could face some of these questions in the future, unfortunately, so why not be prepared?

There are also less grim uses for life insurance that don't involve your funeral or replacing your income. You can purchase a policy for charitable reasons, like donating to a school or foundation. This method allows your donation to grow into a substantial contribution, ordinarily much larger than the amount you first put in.

Myth #7: I'm Young and Healthy, I Don't Need Life Insurance.

The truth is that the myth itself isn't wrong technically. Younger individuals don't usually have families that are dependent on them and have parents who are still working, so buying life insurance isn't always a top priority. Although, this doesn't mean you shouldn't get protected when you are young.

In all actuality, it’s the best time to buy, especially when it comes to permanent policies. By doing so, you lock in a rate that should be relatively less expensive compared to what it would be later in life. Don't believe me? Here are a couple of examples:

Term vs Traditional Life Graph (30 - 60)

That's quite a difference in price. Also, these illustrations assume that the 30-year old and 50-year old have the same level of health, which isn't the case typically. If the older between the two happens to be unhealthy, their rates could be much higher than the numbers shown above.

Sill not sure if you should buy yet? Ask yourself one simple question.

"Do I ever plan on having a family?"

If your answer is yes, then why not lock in an affordable rate early on?

Conclusion

There are many myths about life insurance out there, and all we can do is sift through the information to find the truth. The primary purpose of this e-book is to address a few of these myths and to dispel the falsehoods associated with them.

If you are interested in learning more about life insurance, we recommend speaking to a local representative, as they should be able to answer any questions you may have. Alternatively, if you would prefer to research it yourself, we recommend checking out websites like LifeHappens.org. They are an excellent resource for anything and everything life insurance and have no direct affiliation with any insurer, making them an exceptional, unbiased reference.

Want to learn more about life insurance, or are you struggling with the buying process? Then download our 5 Tips for Buying Life Insurance!

 

 

1Standard, nonsmoker rates for a female age 32. The referenced premiums are based on the cost for ELCO’s 20-year term insurance.

2The figures listed above are based on a standard issue, nonsmoker rates for a male age 60. The comparison takes a $100,000 premium for life insurance vs. an annuity that allows for a full death benefit.

ELCO Mutual and its representatives are not legal or tax advisors. For legal and/or tax advice, please see your tax/legal adviser.

All illustrations within this post  are based on products from ELCO Mutual Life and Annuity and are meant to be generalized. These illustrations are not offers and have no contractual binding. These products are not available in all states. For more information regarding ELCO and its products, please contact the home office.