Life insurance is meant to help your survivors cover their costs in the event of your death. If you have dependents, or if you're planning on starting a family, it's probably a good idea to purchase a life insurance policy so that your loved ones are taken care of financially after you pass.
When you buy life insurance, though, it's important to be careful. There are a number of myths circulating about life insurance, and you don't want to fall victim of a myth that could cost you - and your family - down the road. Here are 5 life insurance myths you shouldn't believe:
Myth #1: Only Breadwinners Need Life Insurance Coverage
This is one of the biggest life insurance myths there is. The assumption is that the breadwinner brings in the money, and so he or she is the only person that needs to be covered by a life insurance policy. However, this attitude fails to consider the fact that a burden can be placed on the survivor by the demise of a stay at home spouse.
Life insurance is about more than just replacing income. Consider this: A homemaker takes care of children and often does the cleaning and cooking. If a homemaker passes away, someone is going to have to do those things, and in many cases this means that the breadwinner will have to hire some sort of childcare, and may even need to hire someone to do some of the cooking and cleaning. It is a good idea to consider these costs as you determine life insurance coverage for a stay at home partner.
Myth #2: Life Insurance Coverage through My Employer is Sufficient
Many people believe that the life insurance policy (usually term life) provided by an employer is sufficient. However, this is not always the case. Indeed, if you are just starting out with a young family, the term life coverage you get through your employer may not be enough. Carefully consider the likely future needs of your family. Then, double check your life insurance benefits. It might be worth it to purchase additional life insurance coverage if you decide that what you get through work is inadequate. Sometimes all you need to do is buy an additional term policy that will cover until your youngest is of age.
You should also make sure you understand the rules of retaining the life insurance coverage in the event that you change employers. It is vital that you understand how your coverage works so that you are able to properly plan for possible eventualities.
Myth #3: All Life Insurance policies are the Same; Only the Benefit Changes
One of the biggest mistakes that you can make is to assume that all life insurance policies are the same, except for differences in the death benefit paid out (and whether the policy is a term or whole life policy). The fact of the matter is that there are many different policies. Indeed, the life insurance policy represents a contract between you and the insurance company. Coverage rules may vary from policy to policy. This means that you need to carefully peruse your policy documents. Know what needs to be done to maintain coverage, as well as which types of deaths are covered. For example, most insurance policies are very particular about how suicide is treated when it comes to the benefit payout. You want to make sure that you aren't doing anything to jeopardize your family's ability to receive the death benefit.
Myth #4: Life Insurance is More Important than Disability Coverage
There are plenty of people who believe that it is of vital importance to have life insurance - and they are right. However, many people believe that life insurance is always more important than disability coverage. Realize, though, that this isn't always the case. Many people overlook disability coverage in their haste to purchase life insurance. As a result, they are not prepared when something happens to limit their ability to earn an income.
While thinking of becoming disabled may be less pleasant to contemplate than death, it's important not to let your desire for life insurance blind you to other types of protection. You want to make sure that your income is protected in the event that you are not dead, but unable to work. Don't overlook disability insurance as you purchase life insurance.
Myth #5: If You Have Poor Health, You Can't Get Life Insurance
Some people in poor health mistakenly believe that they can't get life insurance. Those with diabetes or some other chronic condition worry that they will be considered ineligible for life insurance. The good news is that this isn't always the case. Many people with health problems can purchase life insurance coverage. However, poor health does come with a cost for life insurance. Premiums paid by those with poor health are likely to be higher than those paid by someone in good health.
Life insurance companies are about assessing risk. If you are in poor health, or if you have a chronic condition, you represent a higher risk of dying before the life insurance company (which is, after all, a business) has a chance to collect enough premiums to offset paying the death benefit. In order to help limit some of that risk you will have to pay higher premiums. But life insurance is too important to neglect for this reason. You can get your insurance from a company that specializes in these types of policies, and pay a little bit more, but your life can still be insured.
Bottom line: Don't be fooled by life insurance myths that are out there. Do your research, and look for good information. You'll be able to make better decisions about what life insurance policy is best for protecting your family.