Life Insurance isn’t a one-size-fits-all kind of product, learn what products are more beneficial to you and your family.
Life insurance is a complicated product. Even something as basic as term life insurance come with components that need to be weighed carefully so you come up with the best coverage at the right price. The technical side of life insurance is something that not very many people relish dealing with, so most of the time they are also lost when it comes to the level of coverage they need and why they need it. Here are some misconceptions about life insurance that people who do not have coverage yet need to know about.
Many single people without dependents believe they do not need life insurance coverage. A life insurance policy will take care of medical bills, funeral bills, and personal debts after they pass on. If a single person is uninsured at the time of their demise, the legacy they will leave is a string of unpaid debts for their loved ones to handle. Life insurance would also be a good way to leave something for their chosen charity.
People are of the opinion that their life insurance policy that is valued at twice the amount of their annual salary is adequate. Life insurance is not a one-size-fits-all product where consumers can make generalizations, especially in terms of the amount of coverage. One needs to consider their personal financial situation. It would be prudent to conduct an analysis of one’s cash flow as well as all the obligations they are currently undertaking.
Employees believe that the term life insurance provided by their employer is sufficient. This may be true for single people with modest means, but certainly not for individuals with a number of dependents, a mortgage, and kids being sent to school. There will also be funeral expenses to take care of, and estate taxes after the insured’s death.
Many think that their premiums will be considered deductible. The only time that the premium for life insurance is considered a deductible is when the insured is self-employed and their coverage is being used by the business owner as asset protection. Otherwise life insurance premiums are not deductible.
We are always told that everybody needs life insurance. This does not hold true in every situation. If a person has considerable assets and they do not have debts to pay off, and no dependents that are relying on them, then they would do better self-insuring. If you have an insurance coverage that will pay for your medical bills and the cost of your funeral, then life insurance is optional.
We always hear that it is better to purchase term life and invest the rest of our money into something else. There are distinctions between term life and permanent life insurance, especially when it comes to catering to the unique needs of consumers. The cost of term life can go really high after the term expires. For people who believe that they need to be covered by their life insurance until they die should then consider permanent life over term life. The cost of both insurance policies may come at a near equal cost once term life is renewed so it is not completely true that term life is cheaper than permanent life.
Some people may also be faced by the issue of non-insurability if they are trying to purchase term life insurance, which can pose serious problems to people with estate tax concerns that require life insurance to pay them off. Permanent life insurance can address this concern.
There are some views that variable universal policies are superior to straight universal life in the long term. The thing with variable life insurance is that the pay-off is dependent on the performance of the securities component of the policy. So it isn’t all true that variable life will be better than straight universal life.
Families sometimes think that it is only the breadwinner who needs life insurance coverage. With the high costs of living expenses these days, the cost of replacing the income of the homeowner might be higher than originally thought to be. Insuring against the loss of the breadwinner can make a lot of sense, especially when you consider day-to-day expenses like day care and cleaning costs.
People think that they should always buy the return-of-premium rider on their term life policy. Experts say though that this rider isn’t really that cost-effective and should be side-stepped. Your need for this rider would depend upon your investment objectives, as well as your level of risk tolerance. You can conduct a cash flow analysis to know if you can get ahead by purchasing this rider against finding a policy that already has this feature built into the terms.
Finally, you will be told that you will be better off investing your money on something else than getting life insurance. Until you break even on the money you have invested or hit break even with your asset building, you are going to need some type of life insurance coverage. You would be taking a big chance by relying only on your investments especially if you have dependents. If you pass away without life insurance, you will be leaving nothing for your loved ones after they have used up all your assets.
The bottom line is you should always leave some money in your savings for life insurance unless you have ample assets that can cover all of your expenses after you are gone. It would be wise to sit down with an insurance agent and study your options. Being prepared for the unknown is always a good life philosophy.