Four Misconceptions About Life Insurance


Perhaps it is because life insurance is not an immediate benefit plan – in fact it’s one that we hope we’ll never need – that leads to a number of misconceptions. When it comes to life insurance, people often fall back on vague clichés in dealing with critical needs for coverage.

Here are some of the most common misconceptions – and each needs to be avoided:

“I’m covered at work”

This is one of the most popular clichés when it comes to life insurance. If you work for a company that provides wide-ranging benefits, a life insurance policy is probably somewhere in the mix. As a result, many people assume that they are adequately covered. Unfortunately, this is usually far from truth.

Most employer life insurance policies provide only a flat amount of coverage, and typically at a relatively low level. Most employer policies in fact, top out of $50,000, and you’ll have to pay for any additional coverage above this.

Never assume that your employer sponsored life insurance policy is sufficient coverage for your needs. Spend some time determining how much money your loved ones will need to pay for your final expenses and enough money to survive the first few years after your death. Chances are your employer-sponsored plan will fall way short of the mark.

You can’t get life insurance if you have health conditions

Some people assume that you cannot get life insurance if you have health conditions. This can include fairly ordinary conditions, such as high blood pressure, obesity, smoking, and even a prior history of depression. Or the assumption may be connected to more significant illnesses, such as a prior history of cancer or heart disease.

In truth, none of those assumptions are accurate. While the existence of health conditions, particularly significant ones, will generally result in higher premiums for life insurance, in most cases you can get a policy that will cover you for a very wide variety of health conditions.

This isn’t to say that all life insurance companies will provide policies for all health conditions. What it does mean however, is that there are insurance companies out there that will provide life insurance for nearly any health condition. You just have to be prepared to do some homework. If you have a significant health condition, it is important that you work with a life insurance agent or broker who knows the industry and where to look for the right insurance for you.

You only need life insurance if you earn income

Another huge misconception is you only need life insurance if you earn income. This is completely untrue. There are at least three situations where a non-income earning person should have life insurance.

Non-working spouses. A stay-at-home parent who takes care of the home and raises the children, will also need life insurance coverage. Were he or she to die, the family would need the financial wherewithal to pay for child care and housecleaning services. This will be over and above any costs for final expenses.

Children. At a minimum, you should have enough life insurance coverage on your children to cover final expenses and any overhanging medical costs that were not covered by your health insurance.

Elderly parents. Once again, elderly parents need an amount of life insurance sufficient to cover final expenses and remaining medical costs. But there can also be tax liabilities as well as other liabilities that may impact the parents estate. You should have life insurance on your parents – if they don’t have a policy themselves – to cover these contingencies.

A one size life insurance policy will fit all your needs

Many people take a life insurance policy early in life, and then assume that it will be sufficient for the rest of their lives. Nothing could be further from the truth. The $100,000 policy that you took when you were 25 and single, is likely to be completely inadequate if you’re 40 years old, married and have two or three dependent children. At that point, you will need not $100,000, but several hundred thousand dollars in coverage.

Be sure that you review the amount of life insurance that you have every few years, or every time you have a major change in your life, such as marriage, the birth of a child, or the purchase of a home. Your need for life insurance will increase with each such change.

If you are considering buying life insurance, always avoid generalizing, as well as any misconceptions. Make sure you have the right type of life insurance, and that it’s relevant to your circumstances and needs.