Life insurance can be a little 'tricky' to understand with all its nooks and crannies, technicalities, underwriting and rules. This blog post will quickly underlie the top 10 misconceptions, surrounding life insurance to make the path to getting a great cover a little smoother.
1- I Don't Need Coverage Because I'm Single and Don't Have Dependents
Even single people need at least enough life insurance to cover the costs of personal debts and medical and funeral bills. If you are uninsured, you may leave a legacy of unpaid expenses for your family or executor to deal with. Plus, this can be a good way for low-income singles to leave a legacy to a favourite charity or other cause.
2- My Life Insurance Coverage Only Needs to Be Twice My Annual Salary
The amount of life insurance needed depends on each person's specific situation. There are many factors to consider. In addition to medical and funeral bills, you may need to pay off debts—such as your mortgage—and provide for your family for several years. A cash flow analysis is usually necessary to determine the true amount of insurance that must be purchased. The days of computing life coverage based only on one's income-earning ability are long gone.
3- My Term Life Insurance Coverage at Work Is Sufficient
Maybe or maybe not. For a single person of modest means, employer-paid—or provided term—coverage may actually be enough. But if you have a spouse or other dependents, or know that you will need coverage upon your death to pay estate taxes, additional coverage may be necessary.
4- I Must Have Life Insurance at Any Cost
In many cases, this is probably true. However, people with sizeable assets and no debt or dependents may be better off self-insuring. If you have medical and funeral costs covered, life insurance coverage may be optional.
5- I Should Always Buy Term and Invest the Difference
This is not necessarily true. There are distinct differences between term life and permanent life insurance, and the cost of term life coverage can become prohibitively high in later years. Therefore, those who know for certain they must be covered at death should consider permanent coverage. The total premium outlay for a more expensive permanent policy may be less than the ongoing premiums that could last for years longer with a less expensive term policy.
There is also the risk of non-insurability to consider, which could be disastrous for those who may have estate tax issues and need life insurance to pay them. This risk can be avoided with permanent coverage, which becomes paid up after a certain amount of premium has been paid and remains in force until death.
6- Only Breadwinners Need Life Insurance Coverage
Nonsense. The cost of replacing the services formerly provided by a deceased homemaker can be higher than you think, and insuring against the loss of a homemaker may make sense, especially when it comes to cleaning and daycare costs.
7- I'm Better Off Investing My Money Than Buying Life Insurance of Any Kind
Hogwash. Until you reach the breakeven point of asset accumulation, you need life insurance coverage of some sort. Once you amass a large amount of of liquid assets, you can consider whether to discontinue (or at least reduce) your policy. But you take a big chance when you depend solely on your investments in the early years of your life, especially if you have dependents. If you die without coverage for them, there may be no other means of provision after the depletion of your current assets.
BONUS - Purchasing a Life Insurance Policy Is Complicated
With MaxInsuranceBrokers, it certainly is not. Being an independent insurance broker, we aren't tied to any particular insurer and we can analyse the market to find you the best cover at the best price.
Our dedicated team will guide you through the process and handle any queries you might have throughout.