Life insurance provides security and peace of mind, but there’s lots of incorrect information out there that may stop buyers from purchasing a policy. This increases financial risk for your loved ones as you may not provide them with the security they need to maintain a comfortable lifestyle.
Before you dismiss life insurance, consider whether you’ve fallen prey to one of these seven life insurance myths.
I’m Single – I Don’t Need Life Insurance
Even if you do not have a partner or children, your death could leave your family or executor covering your funeral bills and debts. A basic life insurance policy isn’t expensive. It is also a great way to leave money to your favorite charity if you have few assets.
I Am a Stay-At Home Parent – I Don’t Need Life Insurance
Life insurance is still important for stay-at-home parents. The services you provide such as childcare, cooking, transportation, and cleaning will cost your survivors tens of thousands of dollars annually. Life insurance can help cover some of these costs.
I Have Enough Insurance
Some people are under the misconception that their employer term life insurance coverage is enough. However, the amount of insurance you need depends on your debts, funeral costs, taxes, and how much your family will need to live comfortably.
For this same reason, buying insurance in an amount equal to twice your salary may not be enough. A cash flow analysis is the best way to determine an appropriate insurance amount.
Term Insurance is Cheaper
Some sources suggest if consumers buy term insurance instead of permanent life insurance the cost difference between the policies can be invested, making term insurance more beneficial and cheaper. However, this isn’t necessarily true.
Term life insurance can become very expensive later in life. You could also find you’re uninsurable. Plus, term life insurance only provides a fixed amount of money if you die within the course of the term.
Permanent life insurance holds a cash value that grows and you can borrow against it. Additionally, the policy does not expire.
Life Insurance Policies Generate Income Tax
The IRS does not require beneficiaries to claim the income generated by insurance benefits. The only taxes your beneficiaries will pay are on the interest earned on the amount paid.
Investing is Better than Buying Life Insurance
This definitely isn’t true until you have accumulated sufficient liquid assets to amply provide for your loved ones and pay off estate taxes, debts, and funeral expenses. You’ll be leaving your loved ones at considerable risk until you accumulate sufficient wealth, because they can only rely on your current assets.
Variable Universal Life Insurance is Superior to Straight Universal
The fees for variable universal life policies are based on the performance of their underlying sub-accounts. If investments do not perform well, the variable policy may have a lower cash value. Poor performance can also lead to cash calls and additional premiums.
Insurance is a complicated industry. Don’t buy a life insurance policy until you understand the risks and benefits. Talk to us. We will perform a cash flow analysis so you only buy what you need.