5 Common Myths About Life Insurance Needs

Do you have enough life insurance to provide for your family if something were to happen to you? This is a question I’ve been getting recently and unfortunately, many people have no idea. After all, life and death insurance agents are two things that most people would probably not be comfortable dealing with.

However, it is an important question. If you don’t have enough life insurance, you can leave your family in a difficult financial situation. On the other hand, you could end up wasting thousands of dollars on something you don’t really need if you buy too much. When determining 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 provide for people who are financially dependent on you such as your children and perhaps your spouse. The second is to pay estate taxes so that your heirs don’t have to sell property or a business to do so.

If you have no dependents or a federal taxable estate (currently over $12.06 million), you may not need life insurance. Keep in mind that insurance companies collect the premiums, invest the money and then pay their expenses and make a profit on the difference. This means that on average, most people would be better off skipping insurance and investing the money themselves, since insurance companies pay out less than the total amount they collect plus investment returns. On the other hand, your family may be one of the few who really needs the insurance. As with all forms of insurance, the key is to have as much as you need, but not more.

A final note on this is that even if you don’t need life insurance, you may want to buy it now. This is because if your health deteriorates, it may be much more expensive, or you may not be able to buy it at all when you need it. So if you anticipate needing life insurance in the future, it might be a good idea to get it while you can.

2) You need life insurance to pay off your debts.

This is a common myth. Many people are worried about their heirs inheriting their credit card or other debt they may have accumulated. While debts can reduce the inheritance you leave to your heirs, the excess debt is extinguished with you, unless the debt was joint, community property or had a co-signer/guarantor.

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

Buying a life insurance policy for this purpose can be the most expensive way to finance it. If your heirs will inherit any savings or other liquid assets, they can always use them to pay these costs. But if your debts wipe out your wealth, a small final expenses policy may make sense to avoid leaving your heirs with this burden.

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

Life insurance agents tend to like using this method of calculating life insurance needs because it’s quick and generates large amounts of insurance needs, but do you really need to replace all of your income for the rest of your life? your job? Here are some questions to consider. How many years will dependents need financial support? If you only have one 15-year-old child, that could be closer to 7 years until he graduates from college than the 20 years you have until you retire.

Have you checked the Social Security website to see what survivor benefits your family would be eligible for? These benefits are often overlooked and can be quite substantial, especially if you have children under the age of 18 (or up to 19 as long as they are full-time high school students). Finally, remember that some expenses may increase like health care if your spouse relies on employer benefits and child care. You can use a calculator like this one to estimate how much you need.

5) You don’t need to worry about your life insurance policy once you buy it.

People tend to buy life insurance and then forget about it, but a change in your financial situation or a birth, death, marriage or divorce in your family may require you to update the beneficiaries or the amount of insurance you need. Since premiums have been falling for years due to longer life expectancies, it may also be a good idea to see if you can buy the same amount of insurance for a lower cost, especially if your health or lifestyle has improved. . There are sites like term4sale that allow you to easily compare low term policy rates online. Just make sure you’ve secured a new contract before ditching your old one.

Protecting your family is important, but it’s also important to make sure you’re not wasting money on insurance that could be used for other financial needs. The key is to find the right balance for you. Don’t let these common myths throw you off.

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