Finding and buying the right life insurance is a big task, and it can be a challenge to locate the carrier and coverage that fits your needs. In addition, there are many myths about life insurance, and keeping the life insurance myths and facts straight takes some work. In this guide, Bankrate’s insurance experts take a close look at some of the most common life insurance myths and explain why they may not be true, so that you can make your own decision based on solid facts, rather than assumptions.
Myth 1: I’m not old enough to buy life insurance
It’s easy to assume that life insurance is something that’s best for older, established individuals with a family to protect and financial reserves to pay for the policy. But the reality is that the younger you are, the more likely it is that you will find cheap life insurance.
Your age is one of the primary factors that insurers use to determine what you will pay. They assume that the younger (and healthier) you are, the less likely they will have to pay out on a claim, with the result being that they charge you less for your coverage.
This is especially true for term life insurance, which is generally the most affordable type of policy because it only pays a death benefit if you pass away during the policy’s term. You are also likely to pay less for permanent types of insurance, such as whole life, when you are younger. Keep in mind that it is often possible to buy a cheap term life insurance policy when you are young and convert it into more substantial, permanent coverage when you are older and more able to manage the potentially higher cost.
In fact, older adults may have difficulties finding coverage, especially if they have pre-existing health challenges. If that’s the case, you may be placed in a high-risk category, resulting in higher costs or even a coverage denial.
Myth 2: Life insurance is expensive
Life insurance premiums are highly personalized, based on multiple factors including your age, health, gender and more, which makes it hard to generalize about costs. Typically, people assume that it will cost more than it does.
In LIMRA’s 2024 Insurance Barometer Study, for example, more than half of those polled overestimated the cost of a 20-year term policy for a 30-year-old. Most respondents believed that such a policy would cost $500 annually or more. In reality, the premium would come in at about $200 a year.
Considering the many factors involved, your best strategy may be to get quotes from several insurers to get a sense of the range of prices on offer. You may be pleasantly surprised by what you find out.
Myth 3: Stay-at-home parents don’t need life insurance
It is a myth to think that you don’t need a life insurance policy for someone who does not generate an income. As many stay-at-home parents know, the value of the services they provide to their family, including childcare, transportation, tutoring and cooking satisfying meals, is immeasurable. Because of this, a life insurance policy can provide valuable coverage that would protect the remaining partner if they were to pass away.
If a stay-at-home spouse dies, there may be a need to hire childcare professionals as well as others to replace their services. In addition, the burden on the remaining parent will be high, at a time when they may be mourning their loss and struggling to maintain the family members in the manner to which they are accustomed. Having the financial support that a death benefit provides can make a huge difference in the quality of life for a family in this situation.
Myth 4: My group life insurance is sufficient
Many people get life insurance as part of their workplace benefits. But unlike your health or dental insurance, group life insurance through your employer is not necessarily sufficient for your family’s needs. Additionally, if you quit your job or are laid off, you will likely lose your group life insurance coverage.
Most employers base your group life insurance coverage on your salary. Based on how much financial support your family needs, your group life insurance may not be enough. If you have group life insurance, it may be a good idea to supplement it with a personal policy that will follow you even if you change jobs.
Myth 5: I don’t need life insurance if I have personal savings
Saving money is a great financial habit, but even if you have a sizable emergency fund, you may still benefit from life insurance. Generally speaking, it may not be wise to rely entirely on savings to support your family members if you were to unexpectedly pass away.
Even the biggest savings accounts can get drained in the event of a major life change. For instance, if you suffered a medical emergency, a chunk of the money in your savings account may go toward hospital bills, leaving your account much smaller than it was before. In the event of your death, there might not be enough leftover in savings for your family members to maintain their current lifestyle.
A life insurance policy can provide a large safety net at a reasonable cost. The death benefits are typically paid tax-free to beneficiaries and they can use the money however they wish.
Myth 6: I can’t get life insurance if I have a pre-existing condition
Many individuals worry about the medical exam, which is a common requirement when applying for life insurance. They may assume that a pre-existing condition or genetic predisposition to an illness, such as heart disease or cancer, may make them uninsurable. Although your health does play a role in determining your premium, it’s a myth to think you can’t get coverage just because your health is less-than-perfect.
Insurers often assign potential policyholders into categories, from preferred plus to substandard. An applicant with a pre-existing condition may be placed in a lower tier. But other factors matter, too. If your condition is well-managed and you are under a doctor’s care, you may earn a higher ranking. Your lifestyle also plays a role. If you are a non-smoker, for example, you are likely to earn a more favorable ranking.
If you have a serious health concern, you might want to consider no-medical-exam coverage, such as guaranteed issue insurance. Don’t assume, however, that other types of policy, such as term, whole or universal life, are out of reach. It costs nothing to consult with an independent licensed insurance agent, who can answer your questions and help you find a policy that suits your needs, no matter what your health is like.
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