Life Insurance Myths

The ancient Romans developed an early form of life insurance known as “burial clubs.” Membership brought rewards, including the cost of members’ funeral expenses and assisting survivors financially.

For many, the basic tenet of life insurance — that it provides support to survivors — remains intact today, but it reveals a limited view of how the product has evolved over the last 2,000 years. 

Over the decades — and centuries — ideas have formed about life insurance, many of them outdated or flat-out  inaccurate. With September being Life Insurance Awareness Month, it’s a great time to provide answers to five of the biggest myths about life insurance to help you better decide if the product is right for you as part of your investment and retirement plan.

1. It’s too expensive. According to the 2015 Insurance Barometer Study, “cost is the reason most Americans give for not owning life insurance.” Millennials and Gen Xers have been most deterred by the idea of life insurance being expensive.

The Barometer Study found that millennials overestimated the cost by 213 percent while Gen Xers considered life insurance 119 percent higher than its actual cost. Not only did the study show that consumers viewed life insurance as too expensive, but only a third of them understood that their health, age and credit histories played a role in the price they would pay.

More than a quarter of those surveyed thought that a $250,000 20-year policy for a healthy 30-year-old would cost $1,000 a year when it actually would cost about $150 annually.

2. I’m not healthy enough to qualify. In most cases, health conditions are not a complete barrier to qualifying for life insurance. Many companies in the insurance industry cover a range of health conditions; some even specialize in high-risk cases.

Factors such as pre-existing health conditions and age generally result in higher costs for the consumer, but in most cases, they do not prevent the consumer from buying a policy.

3. My employer-provided insurance is all I need. It depends on the company, but typically, your employer may provide you with life insurance equal to 1-2 times your annual salary.

In some cases you may be allowed to purchase enough insurance to equal six times your salary. But those opportunities are rare and becoming rarer as company’s continue to scale back on employee benefits.

Also, if you do have insurance through your company, you are at risk of losing it when you leave. In addition, company policies, while often inexpensive to begin with, can ratchet up in cost annually. As an individual, you can purchase life insurance and lock in your cost for the life of the policy.

4. I’m young, healthy and single. You might say, “life insurance is for people married with kids. I’m too young and healthy too be worried about buying death protection.”

Actually, life insurance makes the most sense when you’re young. The premiums

are cheaper and, the longer you wait, those premiums will go up as you are more

likely to develop medical conditions.

5. I can invest my money better elsewhere. If you look at life insurance strictly as an investment, it’s true, you could keep your assets in equities and you could outperform the policy’s return. The key word there is “could.” And, let’s assume you purchase a $1 million life insurance policy.

How many years will it take you to hit that million-dollar cushion in investments so it could replace that policy?

Whether you choose to purchase life insurance as a legacy for your survivors or if you are looking deeper into the financial planning and investing aspects of a policy, your best bet is to discuss all of your available options with a financial professional.

Just remember the old saying in life insurance circles, “If you procrastinate and wait until the time you need it, then it’s too late to get it.