5 Common Myths About Life Insurance Requirements

Do you have enough insurance to take care of your family if something happens to you? This is a question I have received recently and unfortunately, many people do not know. After all, life and death insurance providers are two things that most people don’t want to deal with.

It’s an important question though. If you don’t have enough insurance, you could leave your family in financial trouble. On the other hand, you can end up spending thousands of dollars on things you don’t need after buying too much. When considering how much life insurance to buy, here are some common myths to avoid:

1) Everyone should have life insurance.

Life insurance has two main functions. The most common is to give to people who depend on you financially such as children and possibly a spouse. The second is to pay the estate tax so that your heirs do not have to sell the property or business to do so.

If you have no dependents or a federally taxable estate (currently more than $12.06 million), you may not need life insurance. Remember that insurance companies collect premiums, deposit the premiums, and then pay their expenses and make a profit. This means that on average, most people would be better off skipping insurance and investing on their own since insurance companies pay less than their total income plus their income. On the other hand, your family may be one of the few who need insurance. As with all types of insurance, the key is to have as much coverage as you need but not too much.

A final note on this is that even if you don’t need life insurance, you can buy it now. This is because when your health starts to deteriorate, it may become more expensive, or you may no longer be able to afford it when you need it. Therefore, if you expect to need life insurance in the future, it may be a good idea to get as much as possible.

2) You need life insurance to cover your debts.

This is a common myth. Many people worry that their heirs will inherit a credit card or other debt they may have accumulated. Although debt can reduce the inheritance you leave to your heirs, excess debt dies with you unless the debt was joint, community property or you have a co-signer/guarantor.

3) Everyone needs life insurance to cover funeral and other final expenses.

Buying life insurance for these reasons can be a very expensive way to get money. If your heirs receive any savings or other liquid assets, they can use them to pay these bills. But if your debts are wiping out your wealth, a little last-minute spending plan may be wise to avoid leaving your heirs with this burden.

4) Everyone needs adequate life insurance to replace your lifetime income.

Life insurance agents like to use this method of calculating life insurance needs because it’s quick and produces the most insurance premiums, but do you need to adjust your entire income for the rest of your working life? Here are some questions to consider. How many years will your dependents need financial assistance? If you only have a 15-year-old child, that could be closer to the 7 years until they graduate from college than the 20 years you have until retirement.

Have you checked? Social Security website to see what survivor benefits your family may qualify for? This benefit is often overlooked and can be overwhelming, especially if you have children under the age of 18 (or even 19 if they are a full-time high school student). Finally, don’t forget that other expenses can go up like health care if your spouse relies on your employer’s benefits and child care. You can use the calculator like this estimate the amount you want.

5) You don’t have to worry about your life insurance after buying it.

People tend to buy life insurance and forget about it, but economic changes or a birth, death, marriage, or divorce in your family may require you to change your benefits or the amount of insurance you need. Since rates have been falling over the years due to longer life expectancy, it may also be a good idea to see if you can buy similar insurance at a lower cost, especially if your health or life expectancy has advanced. There are pages like term4sale which allows you to easily compare the prices of the cheapest policies online. Make sure you get a new contract before downloading your old one.

Protecting your family is important, but so is making sure you’re not spending money on insurance that could be used for other financial purposes. The key is to find the right method for you. Don’t let these common myths throw you off.