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Updated Sept. 16, 2021, at 9 a.m. CT
Most of us believe we should have life insurance. But only half of us have a policy in place to protect our loved ones.
Why is that?
For starters, it’s a tough topic. Thinking about life insurance forces us to think about the end of life. So we’re more than willing to push that thought aside and vow to tackle it another day.
Unfortunately, procrastination doesn’t work in our favor. The longer we wait to purchase this coverage, the more costly—and potentially unattainable—it becomes.
Knowledge is power, though.
Knowing how this coverage works—and how it doesn’t—can empower us to take the next step. And suddenly, instead of dreading what feels like a morbid task, we’re simply creating a backup plan for the ones we love.
7 myths about life insurance
There are plenty of myths about how life insurance works. So let’s start there—and explain why these myths don’t hold up.
|1| Life insurance is expensive
One of the biggest myths is that it comes with a hefty price tag.
Get this: More than half of us overestimate the cost of term life insurance by three times its actual price, according to the 2020 Insurance Barometer Study.
|2| I’m too young to buy it
Waiting to buy coverage can prove costly. By purchasing coverage when you’re young and healthy, you help eliminate concerns later in life when health issues tend to add up. Don’t wait for a serious health scare to seek coverage—it might be too late to secure it.
Premiums can be relatively low, especially when you’re young. If you get your coverage at a young age, you can lock in your premiums for life. These premiums are mostly based on age: The younger you are, the less expensive your premiums will be!
“Every year that we wait to purchase life insurance, the premiums get more expensive,” said Tim Bemis, insurance services manager at Dupaco Insurance Services.
|3| My children don’t need life insurance
Not only is the birth of a child an important time to reevaluate your coverage, but it’s also crucial to start a policy for your child. Why? See Myth No. 2 above.
“One of the greatest gifts you can give them is a life insurance policy,” Bemis said.
|4| My coverage needs to be twice my annual salary
The amount of life insurance needed depends on your unique situation.
In addition to medical and funeral bills, you might need to pay off debts—such as your mortgage—and provide for your family for several years. If you have young children, you might need coverage that’s 10 times your annual salary to help your spouse get them through high school.
A life needs analysis can help determine the proper amount of insurance that’s right for you.
“The days of calculating life coverage based only on your income-earning ability are long gone,” Bemis said.
|5| I don’t need coverage because I’m single and don’t have dependents
Even single people need at least enough insurance to cover the costs of personal debts and medical and funeral bills. If you’re uninsured, you might leave a legacy of unpaid expenses for your family to deal with.
Consider this: Life insurance can help you leave a legacy to your favorite charity.
|6| My insurance coverage at work is enough
Maybe. Or maybe not. If you’re single, an employer-paid or provided term coverage might be enough—while you work there.
“As soon as you no longer work at that employer, that coverage usually goes away,” Bemis said.
Most group plans are equal to your salary, which might leave you underinsured. Think of it this way: Could your family continue their way of life with one year of your salary?
It’s usually better to think of employer coverage as one piece of your entire life insurance plan.
|7| I should always buy term and invest the difference
This isn’t necessarily true. Different policies meet different needs.
There are distinct differences between term and permanent life insurance:
The cost of term life coverage can become prohibitively high in later years when your original policy term expires.
Bemis recommends that most people consider carrying some whole life insurance—at least enough to cover burial expenses—and enough term insurance that would replace your income from now until age 65.