The concept of life insurance might appear puzzling when starting. But with the correct information, it’s simple to understand and avoid common mistakes that most beginners make.
This post will demystify seven most common myths about life insurance that we see a lot of people believe. Ultimately, we want to help you understand exactly what’s entailed in these types of policies which include term life, whole of life, over-50s, and non-medically underwritten cover.
Let’s get right into it!
You Always Get A Payout
The main reason for taking out life insurance is to give your precious ones the much-needed financial cover when you’re gone. Even so, a payout is not always guaranteed and we’ll explain why.
For starters, your dependents must initiate the process by making a death-benefit claim with your insurer. This is more of a formality in the claiming process that allows your provider to validate the specific risk covered by the policy. After the process completes, the company wages out the proceeds from the cover into the trust which then disburses the money to the listed beneficiaries.
You Don’t Need Life Insurance If Single
The fact that you’re single or unmarried doesn’t necessarily translate to having no dependents. For example, if you run a company and have some employees to take care of, you may take out a life insurance policy to afford death benefits to their dependents.
In short, dependents can range from coworkers, significant other, parents, and even close friends. This means everyone needs coverage regardless of their marital or relationship status. Your beneficiaries can use the payout to take care of costs such as burial, mortgage or personal debts. Alternatively, the death benefits could be allocated to a charity of your choice to help cement your legacy.
Premiums Stay Constant
This is true to some extent but there’s an exception. Typically, you will pay fixed premiums throughout the duration you’re covered. This means even if you get sick or your existing condition worsens your insurer won’t revise your payments upwards.
However, some providers allow you to bargain for cheaper rates when your health improves – a concept known as reconsideration. Here, your insurer conducts the underwriting process again aiming to revise your current premium rates. If this is an option, you can qualify for a lower rate once you pass the reassessment test.
Life Insurance Is An Investment
Depending on the insurer’s terms or the type of life insurance taken, a sufficiently financed policy can become an investment. However, this is not always the case for some types.
Generally speaking, life insurance provides monetary protection to your dependents only once you depart within the contract period. Should you fail to meet the monthly premiums payments as agreed, any money you’ve spent on the cover goes to waste.
Some forms of whole of life policies may include a cash value that provides similar reimbursements as investments. However, they’re generally expensive to maintain compared to other traditional investments. Besides, the returns might not be high enough especially if you’re frequently cashing out.
Life Insurance Is Costly
A lot of people cite the cost of taking out life insurance as the reason for their inaction. Sure, the policy is an expense but it shouldn’t necessarily be expensive to acquire. Like anything else, there’s something for everyone here depending on your budget.
The cost of premiums largely depends on your circumstances and the benefits you want. For example, a large company will easily spend a fortune on life insurance for its key persons because, first, they can afford it and secondly, they understand what gap those people would leave if they passed away.
You’re too young to buy life insurance Nobody is ever too young for life insurance – of course you must be 18+ to take out this cover. You’re certainly valuable to someone whether that’s your family, close friends or employer. Should you pass away, those who care about you will be left with a gap to fill – and nothing does that better than life insurance benefits.
Luckily, taking out this policy while young means you pay very low premiums as long as you’re in good health.
Employer-Sponsored Life Insurance Is Sufficient
If you’re employed, chances are your employer has a form of life insurance for the company’s employees. Although these can cover some expenses prompted by your demise, the benefits might not be adequate for your dependents or to cater for your debts.
Besides, should you switch jobs or get laid off, you’ll no longer be eligible for benefits unless the insurer allows re-application or conversion to a personal cover.
Have any other myths you’ve demystified on your own? Please share with us through our Contact Page and we'll be happy to include them on our list.
