Are you a fan of Mythbusters? Or those magicians who are kinda jerks because they reveal the secrets of other magicians? Or people who go to parties and interrupt everyone else’s stories with, "Actually…"?
Good! Because this is the life insurance version of that.
It’s no secret that life insurance can be a little confusing. If it wasn’t, PolicyGenius wouldn’t have to exist to help cut through the jargon and black boxiness of the industry. And that means that lots of shoppers come to us with misconceptions and ideas about life insurance that simply aren’t true.
But don’t worry – we’re here to set the record straight. Here are six of the most common life insurance myths that we’re about to bust.
My policy premiums are going to rise as I get older
Now, this one might be confusing for some people because you may have heard that term life insurance gets more expensive as you age. But that’s only before you apply. If you wait until you’re 45 to get life insurance, it’s going to be more expensive than if you had bought it when you were 30.
But we get this myth a lot when it comes to a policy that people already own. Well, you heard it here first, folks: Once your life insurance policy is in force, your premium rates are locked in.
(You might have also heard it here first, where we go into some of the behind the scenes actuarial math behind this.)
Basically, life insurance really does cost more as you get older, but the life insurance company has already taken that into account. Rather than playing a low cost early on and raising your rates every year, you’re paying the average every year, so you pay the same for the entire term of the policy.
I don’t need life insurance if I don’t have kids
You often hear life insurance discussed in the context of protecting your family, securing your family’s financial safety net, looking out for your family’s future – all family, all the time.
We do that here at PolicyGenius, too. That’s because if you’re supporting your family, you really should have life insurance. They’re relying on your income, and they need something to replace it if the worst were to happen to you.
So it stands to reason that if you’re young and/or single, you don’t need life insurance, right?
There’s a good chance you probably don’t, but there are two reasons why you still might consider buying it even if you don’t have kids:
You have student loans or other cosigned debts.** Lots (and lots and lots) of young people have student loan debt, and many of them had their parents cosign those loans. If you want to protect your loved ones from student loans, or any debts they’re cosigned on, you can buy a small policy, enough to cover the debt, so that your parents don’t have to worry about it. Or you can think about future debt – funerals average around $10,000 – that you don’t want to stick anyone with, either.
You want low rates.** Oh hey, we just talked about this in the last myth! Life insurance premiums increase as you get older, and they’re locked in when you apply. So even though you don’t need life insurance now, you’ll probably want it when you get older. And if you’re able to fit it into your budget, you might as well secure low premiums while you can.
Life insurance is too expensive
This one will obviously depend on your definition of "too expensive," but term life insurance is, at the very least, probably less expensive than you think.
How do I know that? Because most people overestimate the cost of life insurance. In LIMRA’s 2016 Insurance Barometer study (an exciting read, if you have the time), they asked participants how much they thought an average $250,000/20-year term policy for a health 30-year-old cost annually. Respondents overestimated the cost by more than four times what it actually was.
Term life insurance policies in your 20s and 30s can be under $40 a month for $500,000 worth of coverage. It’s hard to get a better deal than that.
So if you think life insurance is too expensive, get a free quote and see exactly how much it would cost you. You’ll probably be surprised.
I’m buying life insurance for myself, so I should buy it for my kids, too
Hey, here’s the thing: Don’t buy life insurance for your child. Like, really don’t.
Your children don’t need life insurance. They aren’t the breadwinners in your family, so there’s no income you need to replace. They don’t have any debts, so there’s nothing you need to cover (unless your child is in college, but we’re talking about kid kids here). Child life insurance is expensive and unnecessary. You’re better off putting that money into an investment or a 529 college savings account.
If you’d feel more comfortable having some level of financial protection if your child dies, consider adding a child rider to your own policy. It’ll give you a little bit of coverage without adding too much to the cost of your policy. But when it comes to buying a completely separate policy for your child, take a pass.
I have life insurance coverage through my employer. I don’t need any more
The health insurance you get through your employer might be enough. The life insurance you get through your employer probably isn’t.
If your employer is covering the cost of your life insurance entirely, whether from the goodness of their heart or because they can write of the premiums as a business expense (hint: it’s probably the latter), then it doesn’t make sense to not have it. After all, it’s not costing you anything. But, "Sure, why not," isn’t the same as it being an appropriate level of coverage for your needs.
Employer-sponsored life insurance coverage typically covers only one or two years’ worth of your salary. That means you may not get a choice in your coverage amount, and it might not be nearly close to what your dependents need to cover their costs. Your insurance is also probably tied to your employment; if you leave, you lose the coverage. That means you’ll have to buy your own coverage anyway, and now you’re a few years older, which means it’s going to be more expensive, and we’ve already gone over that.
In the event that you can take your employer policy with you and convert it to an individual policy, the premium rate will be the group rate of your place of (former) employment. Since your coworkers may not be the physical specimen you are, there’s a good chance that rate is more than you’d pay if you just shopped for your own policy.
In short, take an employer life insurance policy if it’s not costing you anything – it’ll just be additional coverage – but buy your own policy, too. You’re going to need it eventually.
Permanent life insurance is never right. Term for life!
Financial experts like Clark Howard, Dave Ramsey, and Suze Orman sing the praises of term life insurance and curse permanent life insurance. That must mean you should always get term life insurance, right? They only sell whole life insurance because it’s a lot more expensive and insurance agents want to bolster their commission.
Usually, yes. For the majority of people who need life insurance, term life insurance is the way to go. It’s simple, it’s cheap, and it does what it needs to do. For the average consumer, it’s enough.
But that doesn't necessarily settle the term vs whole life insurance debate. For a small group of people, permanent life insurance might be an acceptable choice. For people who have complex financial needs, or who might need the cash value component to pay for an endowment or cover an estate tax and can afford the higher premiums.
As they say, there’s an exception to every rule. So while you should be wary if someone is trying to sell you a whole life insurance policy, it’s worth doing your research on the matter.
So there you have it: Six life insurance misconceptions, put to rest. Still have questions? Get in touch with our team of experts, who will set you on the right track and make sure you understand your insurance needs before you buy.