10 MISCONCEPTIONS ON LIFE INSURANCE BUSTED
Myth 1: I’m single and I have no dependents, so I need not to obtain a coverage.
Who told you? Even single individuals need insurance policies to cover expenses including personal debts, medical costs, and funeral bills. For a stable retirement and to secure your family’s future, obtain an insurance. If you do not have one, you may leave unpaid expenses that your family or executor needs to deal with in the future. This is also one good way for singles to support a charity or other causes.
Myth 2: My life insurance coverage has to be only twice as my annual salary.
Life insurance coverage varies from person to person, depending on his financial situation. There are various factors to consider in determining the amount of an individual’s life insurance coverage. Aside from medical and funeral expenses, one may need to settle debts such as mortgage and provide for his family for many years. One should also use a cash flow analysis in order to know the amount of insurance that must be purchased.
Myth 3: My term life insurance coverage at work is enough for me.
Maybe. Maybe not. It is a case-to-case basis. If you are single with modest means, an employer-paid or provided term coverage may suffice. But if you have your own family, and you think the existing coverage is not sufficient to pay estate taxes upon your death, then an additional coverage may be needed. As the saying goes, it is better to be safe than to be sorry.
Myth 4: The cost of my premiums are deductible.
The cost of a personal life insurance has never been deductible unless the holder is self-employed, and the insurance serves as an asset protection for the entrepreneur.
Myth 5: I absolutely must have life insurance.
This is true in some cases. However, individuals with sizable assets and who have no debt and/or dependents, obtaining a life insurance is optional especially if you have medical and funeral coverage.
Myth 6: I should always buy term and invest the difference.
Absolutely, this is not true. There is a distinction between term and permanent life insurance, and the amount of a term life coverage can escalate in the later years. For those who want to be covered at death, consider getting a permanent insurance. The total premium outlay for a more costly permanent policy may be less expensive than ongoing premiums which could last for years with a less costly term policy.
Myth 7: Variable universal life policies are always superior to straight universal life policies over the long run.
Many universal policies give competitive interest rates, and variable universal life (VUL) policies have multiple layers of fees relative to both the insurance and the securities in the policy. So if the variable subaccounts in the policy are not performing well, the variable policyholder may notice a lesser cash value than a person with a straight universal life policy.
Myth 8: Only heads of the family need life insurance coverage.
Absolutely not. Replacing the services given by a deceased homemaker before can be more expensive than you think. And being insured against the homemaker’s death may become more sensible, especially in expenses related to cleaning and daycare.
Myth 9: I should always acquire the return-of-premium (ROP) rider on any term policy.
Normally, there are various levels of ROP riders available for policies that offer this feature. Including the ROP rider in a term policy depends on the individual’s risk tolerance and investment objectives. To determine whether to invest the additional amount of rider elsewhere or include it in the policy, do the cash flow analysis.
Myth 10: It is better to invest my money than buy any life insurance.
Abraham Maslow’s hierarchy of needs has five stages relative to personal finance: survival money, safety money, freedom money, gift money, and dream money. A person cannot address the higher needs unless he can be able to satisfy the lower needs. Safety money refers to the money we allocate to meet life’s unexpected turns. This is where investing and insurance come in. Unless your asset is big enough to cover you and your family in the future, you need to have at least some sort of a life coverage. You will be facing a bigger risk if you will solely depend on your investments. Worse, your family may not have other sources of money after exhausting your investments.
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