Top 6 Life Insurance Myths

Many people prefer to put life insurance on the back burner because they don’t want to think about death and dying. Because of this, life insurance is one of the most misunderstood policies in the insurance world. While it might not be enjoyable to consider the possibility of an untimely death, it is irresponsible not to plan for it. If you’re going to take care of your family while you’re alive, you need to provide some means to take care of them if you’re gone. We’ll cover a few of the most common misconceptions surrounding life insurance.

Myth No.1: I'm single; therefore I don't need any coverage.

Funerals don’t come free and if you were to die tomorrow, someone will be held responsible for your funeral expenses, personal debts, medical bills, etc. If your death could cause financial burden to anyone else, you need a life insurance policy. The only reason to reconsider a policy is if you are single with no dependents and no debt. Even then, medical bills and funeral expenses alone could devastate your family financially.

Myth No.2: I need an amount of life insurance coverage equal to ______ the amount of my annual salary.

Many “experts” on the topic say you should follow the rule of thumb which states you should have two, four, five, or seven times your annual income in a life insurance policy. The truth is, to calculate how much life insurance you’ll need is entirely individual to your situation. First, estimate your annual expenses currently, and then add in additional costs they may face in your absence, consider the fact that child care costs likely will rise as your family grows. Then, add up all other sources of income, such as your spouse's salary or pension, and any Social Security or other government benefits for which they would be eligible, your life insurance policy should cover the rest.

Myth No.3: I get term life insurance through work, so I’m covered.

Maybe, maybe not. If you’re single without a lot of debt and live modestly, perhaps this type of plan is sufficient, but if you have a family with additional responsibilities, additional coverage might be necessary.

Myth No.4: Only the breadwinner of the family needs life insurance coverage.

This is one of the most common misconceptions. Women are the most underinsured entity and the cost of replacing a deceased homemaker with professional childcare and housekeeping can be higher than you think.

Myth No.5: I'm better off investing my money than buying life insurance.

Once you accumulate $1 million of liquid assets, you can consider whether to discontinue or reduce your life insurance. Until then, nothing is more important then a life insurance policy. Investments are risky; life insurance will be there regardless of what the stock market does.

Myth 6: Insurance policies are all the same, just pick the cheapest.

It is crucial to read your life insurance policy, or have your agent go through it with you. The main difference among policies is what situations they will cover, and those they will not. Some will cover death involving drug or alcohol use, others will not. Some will cover suicide, others will not.

When it comes to life insurance, even smart shoppers can get overwhelmed, but if you make a mistake, your loved ones will pay the price. You may not have a second chance to make the right decision to choose a policy that will be there to take care of your family when you are not.

By Matt Reynolds - Google+

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