10 Debunked Myths About Life Insurance

By Richard Horowitz

1. I don’t need coverage because I’m single and don’t have dependents

• Every person needs at least enough life insurance to cover the cost of personal debts, medical and funeral bills.!

• Being uninsured means you could leave your family with a legacy of unpaid expenses.!

• Life insurance is also a good way for low-income singles to leave a legacy to a charity they like.

2. My life insurance coverage only needs to be twice my annual salary

• The amount of life insurance a person needs depends on their specific situation.!

• You might need to pay off debts and provide for your family for several years.!

• Cash flow analysis is necessary to determine the true amount of insurance you need to purchase.

3. My term life insurance coverage at work is sufficient

• Might be true, might not be.!• For a single person of modest

means, it could be enough.!• If you have a spouse or other

dependents, or know you’ll need coverage upon your death to pay estate taxes, additional coverage could be necessary.

4. The cost of my premiums will be deductible

• Not often the case.!• The cost of personal life insurance

isn’t deductible unless the policyholder is self-employed and the coverage is used as asset protection for the business owner.!

• Then, the premiums would be deductible on the Schedule C of the Form 1040.

5. I absolutely have to have life insurance

• Probably true in most cases.!• But if you have sizable assets and no debt or dependents, you could

be better off self-insuring.!• If you have medical and funeral costs covered, then life insurance

coverage could be optional.

6. I should always buy term and invest the difference

• People who know for certain that they need to be covered at death should consider permanent coverage.!

• The total premium outlay for a more expensive permanent policy may be less than the ongoing premiums that could last for years longer with a less expensive term policy.!

• Consider the risk of non-insurability, which could be a problem if you have issues with estate taxes and need life insurance to pay for them.!

• You can avoid such a risk with permanent coverage, which becomes paid up after a certain amount of premium has been paid and then remains in force until death.

7. Variable universal life policies are always superior to straight

universal life policies• Many universal policies pay

competitive interest rates, and variable universal life (VUL) policies contain several layers of fees related to both the insurance and securities elements in a policy. !

• If the variable subaccounts within the policy don’t perform well, then the variable policyholder may well see a lower cash value than someone with a straight universal life policy. !

• Poor market performance can even generate significant cash calls inside variable policies that require additional premiums to be paid if you want to keep the policy in force.

• The cost of replacing the services formerly provided by a dead homemaker can be higher than you think.!

• Insuring against the loss of a homemaker could make more sense than one might think, especially when it comes to cleaning and day care costs.

8. Only breadwinners need life insurance coverage

9. I should always purchase the return-of-premium rider on any term policy.

• There tend to be different levels of ROP riders available for policies that offer this feature. !

• Many financial planners say that this rider isn’t cost-effective, and therefore should be avoided. !

• Whether you include this rider will depend on your risk tolerance and other possible investment objectives. !

• A cash flow analysis will reveal whether you could come out ahead by investing the additional amount of the rider elsewhere, as opposed to including it in the policy.

10. I’m better off investing my money than buying life insurance

• Until you reach the breakeven point of asset accumulation, then you need life coverage of some sort. !

• Once you amass $1 million of liquid assets, then you can consider whether or not you want to discontinue, or at least reduce, your million-dollar policy. !

• However, you take a big chance when you depend just on your investments in the earlier years of your life, especially if you have dependents. !

• If you die without coverage for your dependents, there could be no other means of provision after your current assets are depleted.