8 common life insurance myths, debunked

Get a handle on the ins and outs of life insurance before you start shopping or paying premiums. Here are the life insurance myths we see the most, debunked.

Nupur GambhirAmanda Shih author photo

By

Nupur Gambhir

Nupur Gambhir

Life Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius and licensed Life, Health, and Disability agent in New York.

&

Amanda Shih

Amanda Shih

Editor & Licensed Insurance Expert

Amanda Shih is an insurance editor and licensed Life, Health, and Disability agent at Policygenius in New York City. Her work has appeared in Slate, Lifehacker, Jetty, and J.D. Power.

Updated August 20, 2021|4 min read

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Shopping for life insurance can be a little confusing if the process is new to you. But with a little expert advice, you can feel confident you’re getting the best financial protection for your loved ones.

At Policygenius, we hear a lot of misconceptions about life insurance and how it works. We're here to debunk some common myths so that you have the most accurate information about finding a policy.

1. You don’t need life insurance if you’re young and don’t have kids

You don’t have to have life insurance for your entire life, but just because you’re in your 20s, single, and/or don’t support anyone financially doesn’t mean you don’t need a policy. If you split bills with a partner or have student loan debt, it’s worth considering some coverage.

When you die, your loved ones become responsible for those debts and expenses. Even if no one co-signed your loans, debtors might come after savings and property you hoped to leave behind for your family.

Buying when you’re younger and healthier will also save you money long-term, and you may be able to get a cheaper policy faster if you qualify for a no-medical exam policy.

2. Life insurance is unaffordable

A 2021 LIMRA and Life Happens study found that the majority of people overestimate the cost of life insurance by up to three times. [1] Term life insurance is very affordable, especially for younger and healthier people, and offers the simplest coverage, which is all most people need.

A $500,000, 20-year term life insurance policy costs $25-30 per month for a 35-year-old without serious health concerns. Compare that to a more complex whole life insurance policy at up to $517 per month. Working with an independent agent to shop around will get you the best rates.

3. Life insurance doesn’t cover COVID-19 

Life insurance policies cover deaths caused by infectious disease, so your provider will pay out if you pass away from COVID-19. Your application or claim won’t be denied because of your COVID-19 vaccination status. If you have COVID-19 when you begin your life insurance application, your insurer may delay your process until you have recovered in order to get the most accurate health information.

4. You should use life insurance to invest

Some types of life insurance come with a savings-like cash value feature that earns interest over time. They’re often advertised as a smart way to get life insurance protection and save for retirement at the same time. 

But for most people, life insurance is not a smart investment. Policies that come with a cash value are significantly more expensive and harder to keep in force. Plus, you’ll get a higher return on your investment using a traditional account, like a 401(k). 

High-income earners who often max out all of their other investment accounts are the exception. Everyone else is better off buying a cheaper term policy and keeping their investments separate.

5. The life insurance from your job is all you need

Many employers offer group life insurance at little or no cost as part of their benefits package. The catch is that group life insurance doesn’t offer all of the coverage you need, and you lose it when you leave your job.

The median coverage amount offered by employers in the U.S. is $250,000 at most. [2] But, experts recommend having life insurance coverage equal to at least 10 to 15 times your annual salary. If you make $75,000, you want at least a $750,000 policy; a group policy would leave you severely underinsured. 

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6. You don’t need life insurance if you already have savings

Unless you’ve saved enough money to support your dependents for the rest of their lives and pay off all of your debt, you need a life insurance policy. The policy provides security in case you die before you accomplish your long-term savings goals. 

Ideally, you’ll outlive your policy and by the time your coverage expires, you’ll have no dependents and enough money in savings and investments to cover your retirement and end-of-life expenses. Until then, you need a policy to protect against a worst-case scenario.

7. Stay-at-home parents don’t need life insurance

Stay-at-home caregivers who don’t earn a salary often think they don’t need coverage. However, studies estimate the economic value of running a household at $178,201. [3]  

If you take care of your children, aging parents, or perform household tasks like cleaning and grocery shopping, your partner would need to replace that work by taking time away from their job or hiring help. Life insurance can support those expenses if you pass away.

8. Life insurance companies automatically pay out when you die

If you’re the beneficiary of a life insurance policy and the policyholder dies, you don’t automatically receive the insurance payout. To get the funds, you have to file a claim with the life insurance company.

The claims process usually starts with a claims form and a phone call to the life insurance company. After that, insurance providers take two weeks to 60 days to process and pay out your claim.

If you're having trouble locating the original policy or insurer, free lookup tools from the National Association of Insurance Commissioners and other trusted organizations can help.

Understanding what type of coverage you need to protect your loved ones is essential. Working with a licensed insurance broker, like Policygenius, will ensure that you’re getting the policy you need.  

Frequently asked questions

Does life insurance last until you die?

Term life insurance lasts for a set period (usually 10-30 years) and pays out if you die in that period. Permanent life insurance lasts until you die, but is much more expensive.

Do you really need life insurance?

Unless you have enough savings to support your loved ones, you should have a life insurance policy to provide for your dependents and to pay off your debt.

What is a common misunderstanding about life insurance?

Many people overestimate the cost of life insurance, but a term life policy is affordable for most.