Most Americans do not fully understand insurance.
Life is full of the unexpected.
This is what makes insurance attractive.
It minimizes the risks and effects of negative situations.
Even so, many people do not fully understand how to make life insurance work best for them.
According to a recent Investopedia article titled “Top 10 Life Insurance Myths,” people tend to have inaccurate, preconceived notions when it comes to this fundamental financial planning product.
Singles with no children need no coverage.
Even if you have no heirs, you will likely leave debts.
These include medical expenses, personal debts, and funeral bills.
Having insurance will allow for you to cover these expenses without placing the burden on your loved ones.
It would also allow you the opportunity to leave money to a beloved charity.
Insurance coverage should be two times your salary.
There is no magic number.
It will depend on your specific circumstances.
Do you have a mortgage?
Do you have other debts?
Do you have a young family that would struggle financially without your economic provision?
Would you want to provide your children with such things as braces, dance lessons, and a quality education?
The answers to these questions will impact the amount you need.
If wishes were horses, then rides would be free.
Unfortunately, horses are expensive!
Term life insurance from your employer is enough.
This is not always the case.
If you are single and live modestly, this may be the case.
If you have children and a spouse and know you will need coverage when you die, chances are you will want more protection than what your employer has provided.
The cost of premiums are deductible.
This is false.
This is only true if the policyholder is self-employed.
The coverage must also be used as asset protection for the business owner.
If both of these are true, the premiums are deductible on Schedule C of Form 1040.
I absolutely need life insurance.
While this is true for most people, it may not be true for you.
Are you free of debts?
Are your medical costs covered?
Are your funeral costs covered?
If yes, then you may not need life insurance at all.
You should purchase term insurance and invest the difference.
Term and permanent life insurance have distinct differences.
These differences could cost you in the future if you choose term over permanent.
If you are positive you will need to be covered after death, then you should seriously consider permanent coverage.
The total premium cost for the permanent life insurance could be less in the long run than term premiums.
You also may become uninsurable in the future due to a change in your health.
Remember: your health "buys" the coverage and your money just pays the premiums.
Uninsurability could be a problem if your situation demands coverage.
With permanent coverage, your coverage may be "paid up" once your "cash value" reaches a certain amount and will remain in effect until death.
Variable universal life policies are always better than straight universal life policies.
This is not always true.
Variable universal life policies often have of layers of fees for the securities and insurance parts of the policy.
Those who have straight universal policies may have a higher cash value if the variable sub-accounts within the variable policy perform poorly.
The poor market performance may require additional premiums be paid to keep a variable policy in effect.
On the other hand, fluctuations in interest rates may have the same effect on straight universal life policies.
Only the primary money-maker needs insurance.
This is false.
If the homemaker dies, you will have other costs to cover.
This could include daycare and cleaning and cooking.
Insuring the loss of a homemaker may make sense for your family.
You should always buy the Return-of-Premium (ROP) rider on any term policy.
Some financial experts will always advise against this because it is not cost-effective.
The wisdom of this decision depends on your risk tolerance and other investment objectives.
You may do better investing the money elsewhere.
A cash flow analysis can be beneficial in this decision.
I should invest my money rather than allocating any to life insurance.
You need life insurance coverage until you reach the "breakeven point" of asset accumulation, which itself is unique to your goals and circumstances.
If you have a million in liquid assets, it may not make sense to have a million dollar policy.
If you are relatively young with minor children and a mortgage, then having no life insurance is risky.
No, actually, it is foolhardy.
If you die without a policy, your loved ones will be left with insufficient means of support after your assets have been used.
Life insurance will play an important role in the lives of most Americans.
Work with an experienced financial advisor to determine the best course of action for you and your loves ones.
Work with an experienced estate planning attorney to create appropriate trusts to protect life insurance proceeds "from" and "for" your loved ones as needed.
Reference: Investopedia (July 2, 2018) “Top 10 Life Insurance Myths”