A recent life insurance survey revealed that almost 19 million Americans1 are “stuck shoppers” who know they need life insurance, have expressed a desire to buy life insurance and have even researched life insurance options. But they haven’t actually purchased life insurance, in part because they found the process confusing, frustrating and overwhelming. And while all financial products are complex, the myths and misconceptions surrounding life insurance seem particularly persistent.
To be fair, the subject matter probably doesn’t help. No one wants to ponder their own death so it’s convenient to throw up your hands, say it’s all too confusing and put it off for another day, month or year. Then again, many people find mobile phone plans confusing and overwhelming but that doesn’t prevent them from signing up and handing over money each month for a service they feel they can’t live without.
Are you using confusion as a reason not to move ahead with life insurance? We’re going to take away some of your excuses by debunking some of the most common life insurance myths.
1. Myth – I only need life insurance if I have kids.
Reality: This myth is understandable. You want your children to live the life you’ve planned for them, even if you’re no longer here. And while you love your spouse and siblings, they are adults who can theoretically take care of themselves. But what about funeral expenses or legal concerns? You probably don’t want your loved ones to bear the burden of these costs. This myth also ignores the impact of an unexpected death on a spouse who may find it difficult to continue working in their bereavement. Life insurance can help them cope with the situation without having to worry about paying the bills.
2. Myth: Life insurance is really expensive.
Reality: Surveys have shown that consumers believe life insurance costs nearly three times the actual price2. When asked, most Americans estimated a healthy 30-year-old would pay $400 annually for a 20-year, $250,000 level term life insurance policy when in fact it would actually cost closer to $150 per year2. Millennials and Gen Xers are particularly prone to overestimate the cost of life insurance on average by 213% and 119% respectively2.
Not only is life insurance more affordable than most people believe, premiums are based on many things that you have some control over such as credit history, lifestyle and hobbies.
3. Myth: Life insurance providers use impossible-to-understand language just to confuse me.
Reality: The life insurance industry has no shortage of baffling terms such as ‘irrevocable beneficiary’, ‘face amount’ and ‘cash value’. But despite their use of archaic terminology and bewildering jargon, life insurance providers are not out to confuse hapless customers and create stuck shoppers. However, the industry has been slow to adopt plain language communication trends that other sectors have embraced. Also, some of the more confusing language is actually required by law as part of regulations designed to protect consumers. That said, things are changing and Foresters Financial has many user-friendly resources to help you make sense of life insurance options and your advisor can also help demystify the products.
4. Myth: I don’t need life insurance. I can just save or invest my money.
Reality: Life insurance products and savings plans are two different things. In general, life insurance is a risk management tool that protects your family from the financial implications of your unexpected death. Savings and investments are how you proactively plan for a future that you expect to enjoy. You may believe that you can wisely invest the monthly premium you would pay towards life insurance but people tend not to save as much as they think they will and it’s tempting to dip into savings accounts for emergencies. A recent survey revealed that 70% of U.S. households with children under 18 would have trouble meeting everyday living expenses within a few months if a primary wage earner were to die3 making it more important than ever to be prepared. Savings may fluctuate but a life insurance policy is guaranteed as long as the premiums are paid.
5. Myth: I’m a stay-at-home parent so I don’t need life insurance.
Reality: Give yourself the credit you deserve! You may not be driving to a workplace every day but your contribution is extremely valuable. In fact, a recent study estimated it would take more than $143,000 a year and 92 hours a week to replace the top ten tasks of the average stay-at-home parent4. In the event of your death, the family ‘breadwinner’ may need to outsource childcare, pet care, housekeeping and food preparation so he or she could continue working.
6. Myth: I don’t need life insurance because I already have it through my employer.
Reality: If you are lucky enough to have group life insurance through work, you are better off than the 43% of American households that have no life insurance at all5. But don’t pop the champagne just yet. Group life policies are a one-size-fits-all solution with a death benefit that is usually fixed at a certain amount or equals somewhere between one and three years of your annual salary. This amount will help your family cover immediate living expenses in the event of your death but it is usually not enough to pay off a mortgage or provide an education for your children. Also, in most cases, you lose your coverage if you lose your job or leave voluntarily.
7. Myth: I’m too young to think about life insurance.
Reality: They say youth is wasted on the young and this rings true when it comes to life insurance. You’re probably focused on paying off your college loans, getting a foothold in your career and enjoying whatever disposable income is left over at the end of the month. But there is good reason to think about life insurance in your 20s or early 30s. Life insurance premiums are less expensive when you’re young and generally increase as you age and go through life’s stages like getting married, buying a home and having children. If you opt for a whole life insurance product, buying young provides an opportunity to lock in lower premiums which will never change.
8. Myth: People with health problems can’t get life insurance.
Reality: Maybe you’ve experienced a major health event such as a heart attack or cancer. Or, perhaps you live with an ongoing condition such as high blood pressure. As a result, you have assumed that you can’t qualify for life insurance but think again. While this may have been true in the past, improvements in health care, earlier diagnosis and lifestyle education mean people are living longer, even after major diseases. Today, many life insurance providers have products designed specifically for this group. Your coverage will probably cost more and the process might take longer but you shouldn’t assume that it’s impossible.
Life insurance is one of the biggest financial choices you will make so it’s important that you base your decisions on facts rather than myths and misperceptions. A trusted advisor can help explain the various options and make recommendations that are right for you and your family. There are also many online resources including Life Happens, a non-profit organization designed to help Americans become more informed about life insurance. You can test your newfound smarts on the LIMRA Life Insurance IQ quiz. And if you don’t score a perfect ten, don’t get discouraged. When the quiz was introduced in 2012, less than one percent of respondents answered all ten questions correctly6. And that’s a fact!