No one wants to think about dying. In fact, just thinking about it makes most of us want to stick our head under a rock. However, no matter how much we hide from it, it’s going to happen.
The best thing we can do is be prepared for it.
That’s right, I’m talking about life insurance. Life insurance is incredibly important in order to take care of your family after you’re gone. However, a lot of life insurance policies can be ripping you off while you’re still breathing!
Here are 6 common myths about life insurance.
1. Everyone Needs It
“Craig, didn’t you just say that life insurance is important?”
I know it may sound like I’m contradicting myself here, but not everyone needs life insurance.
Life insurance is designed to provide financial support for those who rely on your income. If you have a wife or kids that need your paycheck to pay the bills, then life insurance is a must!
On the other hand, if you don’t have anyone that needs your income to put food on the table, then life insurance may be something you can skip.
Let’s say you’re single and your kids are all out of the house. No one is financially dependent on you. Therefore, paying monthly premiums for life insurance can be a waste of money. Instead, consider setting aside enough cash to cover burial expenses, and put those monthly payments elsewhere.
2. If I Get Insurance, I’ll Die
Yes, that is true. But you’ll also die if you don’t get insurance.
I think deep down many of us have a fear that the second we have everything in order our time will be up.
Putting together life insurance forces us to think about death, which can make it seem too real. However, it’s important to push through that discomfort so that our loved ones are taken care of when we die.
3. A Whole Life Policy is the Way to Go
When it comes to life insurance, there are 2 major types; whole life and term life.
Whole life policies typically lock you into a rate and last your entire life. Many of these policies are expensive and are tied to a cash value savings account. So, if you’re paying $150 per month, a chunk of that goes toward your coverage while another portion is put into a savings plan.
The problem with the savings plan is if you die, you only get the face value of the policy. Let’s say you take out a whole life policy for $250,000. After a number of years, you have $15,000 saved in the cash value plan and you die. The insurance company sends your family a check for $250,000. What happens to the $15,000 you’ve been saving? It’s absorbed by the insurance company.
Term Life only covers a pre-determined period of time, usually 10-20 years. Once the term is up, your insurance goes away. However, term life insurance premiums are a fraction of the cost of a whole life policy and doesn’t carry a cash value plan.
Let’s say your term insurance is $30 per month. That is $120 cheaper than the whole life policy we were talking about earlier. Now, what if you were to take that $120 savings every month and invest it? Not only will it likely grow more than a cash value plan, but when you die, your family will actually get that money.
4. Stay-At-Home Parents Don’t Need Life Insurance
A common myth is that only people that contribute financially to the household need life insurance (be careful saying that so you don’t get smacked!).
Of course stay-at-home parents contribute tremendously. Even though they may not bring home a paycheck, the amount saved is incredible.
If you’re the bread winner in your home and your stay-at-home spouse passes away, there are going to be some expenses popping up. Who is going to watch the children during the day? Will you need someone to clean the house, help with grocery shopping, or take care of other essentials? All of these things cost money.
Calculate the financial value of the stay-at-home spouse. How much would these things cost annually if they weren’t around? Then take out a policy for 10x that amount.
5. Employer Provided Life Insurance is a Good Deal
The simple answer is no it’s not. Maybe your premiums are cheaper through your employer (although most times they’re not). However, the level of risk is much higher.
Employer provided life insurance is only extended to their employees. That means if you leave, you are no longer covered under that policy.
The last thing you want during a lay off is to lose your life insurance coverage.
6. You Will Always Need Life Insurance
As I said earlier, life insurance isn’t for everyone. The end goal is to eventually lose the policy all together.
By eliminating debt and building wealth, you can set yourself up to be self-insured. This means that you have a large enough net worth to take care of your loved ones if you pass away.
This is another reason why term policies can be beneficial. By taking out a 20-year term policy, you are setting yourself up to be self-insured in the next 20 years. Think about it; in 20 years the kids will most likely be out of the house and you will be debt free. You will have some retirement saved up and the house will likely be paid off (or close to it). If you were to pass away, your family would be fine.
Death is never fun to talk about. However, it’s up to you to take care of your family in the event you were to die. The best time to start is now!
Curious about becoming self-insured? I can sit down with you and help you create a plan for your future. Email me at firstname.lastname@example.org to set up a consultation!
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