Things just aren't the way they used to be, said everyone about everything — except life insurance, because no one talks about buying a policy unless they need to. But the market has changed significantly over the last decade, which, unfortunately, means the one person you're likely to talk to about getting life insurance — mom or dad — is probably basing their advice off an outdated experience.
Here are five un-truths your parents might have accidentally told you about life insurance.
1. Whole life insurance is the way to go
Whole life insurance stays in effect for your whole life, so long as you're paying premiums. Term life insurance eventually expires. It's reasonable to assume you should opt for the permanent policy. But whole life insurance is expensive. Policies can cost up to 4x the price of term life — and they're much more complex. Unless you're affluent, subject to the estate tax or guardian to a special needs dependent, you can usually spare yourself the expense.
So why might mom or dad suggest whole life? Chances are, they don't realize there are cheaper alternatives. A 2015 LIMRA survey found 80% of consumers overestimate the price of term life insurance. For a full primer on term vs. whole life insurance, you can go here.
2. Life insurance doubles as an investment
So technically permanent life insurance — the family to which whole life belongs — includes what's known as a "cash value" component that grows (or, in some cases, shrinks) over the policy's life. Sounds a lot like an investment, we know. But permanent life insurance isn't going to net anywhere near the same return as a pure investment vehicle, like a 401(k) or individual retirement account. That statement holds true even for fancy-pants perm policies, like universal or variable life insurance, given our long-term low-interest rate environment.
As such, think of life insurance as one part of your family financial protection plan: It's there if you need it, but you don't plan to use it — unlike your cash savings or retirement assets, which are meant specifically to fund your happy golden years.
3. Your beneficiary owns the policy
It's easy to think of the beneficiary as the owner of a policy, because they're technically the person who benefits from it — i.e. they're getting the payout (or death benefit) in the event of your untimely death. But it's important to understand the distinction between the beneficiary and the policyholder, lest you mistakenly believe you have life insurance, upon finding out you're the beneficiary on a parent's policy.
4. You don't need life insurance until you have a spouse &/or kids
So, this one is a little complicated. It's certainly true the need for life insurance becomes readily apparent in the wake of a major life event, like marriage or the birth of the child. But there are two big reasons why you shouldn't necessarily wait to buy a policy. For starters, life insurance premiums go up alongside your age — or if you develop a health condition — so if you plan on having a family, consider getting a policy while prices are in your favor.
Plus, there's a chance you need life insurance anyway: Individuals with co-signed private student loans should consider a policy to protect their co-signer (usually mom or dad) from having to cover the debt alone. That need for life insurance was less prevalent a decade or so ago, when the cost of college was still reasonable-ish, but given Americans now owe over $1.48 trillion in student loan debt, it's worth highlighting.
You can learn more about who needs — or doesn't need — life insurance here.
5. You must go directly to an insurer for quotes
Or visit an agent who can go directly to every insurer and get quotes for you. That was certainly true when mom or dad was shopping around for a policy, but now you can easily compare life insurance quotes across companies online. We know, because that's what we do. We can help you quickly start your life insurance search here.
Disclaimer: Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
Image: Rob and Julia Campbell