Deciding whether or not to have life insurance is an individual decision. Whatever you decide to do or not do, it's important to make an informed decision that's best suited to your family's needs.
To help you learn more about life insurance, let's debunk some of the biggest life insurance myths. This post is brought to you by Policygenius, a leading life insurance marketplace that helps you compare real quotes in one place.
Both my wife and I got new affordable 20-year term policies with Policygenius during the pandemic. We have two young children, ages 6 and 3. Locking down these life insurance policies were a tremendous relief. I highly recommend you get life insurance or extend your policies if you have children and/or debt.
Top Ten Life Insurance Myths Debunked
If you're young, healthy, and don't have any dependents you probably don't need life insurance. But guess what? You won't stay that way forever! Time doesn't stand still and you're getting older every day. Before you know it you could be married, have a mortgage, start a family, and/or develop a serious health condition.
The ideal age to buy life insurance is in your 30s. You get the best bang for your buck as life starts getting more complicated.
Yet so many people in this demographic don't have a life insurance policy. They either don't think they need life insurance, are unaware of the benefits, or have been duped by life insurance myths.
Myth #1: Workplace Life Insurance Is Sufficient
Top firms offer competitive benefits packages including health insurance, dental insurance, life insurance, 401(k) plans with employer matching, etc. Thus, employees who get life insurance through their employer often assume they're sufficiently covered.
This might be true for frugal folks who are single with no dependents and no plans to settle down. But life changes frequently and time goes by quicker than you may realize.
In reality, the amount of group life insurance coverage offered by employers is rarely enough. If you're unsure how much you need, please read this guide on the right amount of life insurance coverage. Most employees need 10X the amount of life insurance coverage offered by their employer to properly provide for their families.
In addition, the number of employees who have access to life insurance benefits through their employer has been declining for the past 15 years.
Another important fact is that workplace life insurance policies are not portable. In other words, a life insurance policy offered through your employer terminates if you quit or unexpectedly lose your job.
Thus, gaps in employment can lead to gaps in life insurance coverage when you are financially vulnerable. Having supplemental private life insurance can ensure continuous coverage for your family. And you can get as large or small of a policy as you need.
Myth #2: You Only Need Life Insurance Coverage Equal To 2X Your Salary
There's a common life insurance myth that you should determine how much life insurance coverage to get by multiplying your annual salary by two. This isn't a great way to calculate how much life insurance you need.
First of all, your specific situation is likely vastly different from your colleagues making a similar salary. And second, there are just too many factors at play to use a generic formula like that.
What is helpful is to use a cash flow analysis of your current and projected spending. Look at how much outstanding debt you have now and if you anticipate making any large purchases such as a car, house, or education expenses.
You should also consider medical bills and funeral costs. Most people don't realize that funerals can cost tens of thousands of dollars.
Myth #3: Buying Life Insurance Is Overwhelming
While buying life insurance before the internet may have been daunting, it's easier than ever now. Thanks to technology and insurance marketplaces like Policygenius, you can get free, confidential quotes in minutes.
Even though there are many different types of life insurance, the vast majority of people are best off with term life insurance.
Term life insurance is straightforward and the most affordable. Simply pick a coverage amount ($), a duration (time), pay monthly/yearly premiums, and if you die during the policy's term (ex. 10, 20, 30 years) your designated beneficiaries will get paid the lump sum of your coverage amount.
Myth #4: Once You Buy Life Insurance, You're Locked In Forever
In my 20s, I thought life insurance was something you'd be stuck paying for life once you bought it. While life insurance companies would love if that were true, it's simply not so.
When you buy life insurance, you're not obligated to pay for it until you die or your term ends. You can cancel your policy at any time, switch carriers, buy additional coverage, and even have multiple policies with different insurers.
Usually, you won't get better pricing as you age. But, I was able to get more life insurance for less money simply by shopping around. The pandemic and the birth of our daughter spurred me to renew my policy.
Myth #5: Life Insurance Is Expensive
Many people don't think they can afford life insurance due to the false perception that it's very expensive. But it's more affordable than you may think. Here's a look at how much life insurance costs by age and gender.
In reality, the average 30-year-old male can get $250,000 in coverage for less than $20/month and $1 million in coverage for less than $50/month. An average 30-year-old woman can get the same coverage for around $15/month and $38/month respectively. Women typically pay less than men of the same age due to having a longer life expectancy.
In addition, if you use Policygenius to purchase a life insurance policy, you could save $1300 or more per year by comparing quotes from top companies. Insurers routinely drop rates to stay competitive and Policygenius reflects the best prices in one place. This makes the shopping process super easy and affordable.
Myth #6: Buying Life Insurance When You're Young Is Pointless
When you're young and healthy, the last thing you're probably thinking about is buying life insurance. And while you may not need it right now, there are benefits to consider. Life insurance while you're young, single, and childless, is still a good idea.
When you buy a life insurance policy when you're young and free of health issues, you'll get the best pricing.
Every year counts. For example, people in their 30s typically see an average annual price increase of 4.5% each year. This jumps to 7.8% per year for those in their 40s and 9.2% per year for those in their 50s.
Buying a policy when you're young and healthy locks in a low rate regardless of how your health or lifestyle changes down the road. Nobody expects to get sick or develop health conditions that can jack up their rates. But it happens all the time.
For example, a friend of mine who is in her 30s needed two surgeries in one year. Now that she's planning to start a family, she wants to buy life insurance. But because of her health changes, she's facing premiums that are 3X what she was getting quoted just a few years ago.
To avoid running into her situation, it's important to carefully consider the benefits of life insurance while you're young and in the best shape of your life.
Also See: Benefits Of Life Insurance For Young Adults
Myth #7: A Pre-Existing Condition Makes You Ineligible For Life Insurance
If you have a pre-existing medical condition, you may think that automatically makes you ineligible to get life insurance. While having health issues won't get you access to the best pricing, you can likely still get coverage.
For example, let's say you have a pre-existing condition like diabetes. As long as you are maintaining your health with medication and a proper diet, you can get life insurance with diabetes.
Conditions like a stroke or cancer, however, may require a two-year waiting period before your coverage becomes active.
Mental health issues are factored into pricing as well. If you have been diagnosed with depression, you can still get coverage if you're actively managing your mental health. The underwriting team may want to know if you are taking any medications to treat your depression and/or seeing a therapist for support.
Here are some related articles to read more about getting life insurance with a pre-existing condition.
- Life Insurance When You Have Heart Disease
- High-Risk Life Insurance: Cost, Selection, Where To Get It
Yes, you may have to pay a higher price for life insurance if you have a pre-existing condition. However, you can still get life insurance.
Myth #8: You Can't Get Life Insurance If You're Pregnant
Getting life insurance when you're pregnant, planning to get pregnant, or just gave birth is totally doable. With a precious new life to protect, life insurance will mean more to you than ever before.
Life gets chaotic fast with a newborn in the house, so don't delay getting life insurance. Many insurers can use your pre-pregnancy weight to determine your rate. Make sure to ask if they don't automatically offer to.
If you develop gestational diabetes or have complications with your pregnancy, you might face slightly higher rates. But you still should not have a problem getting a policy. Life insurance is about protecting families after all. As soon as you know you are having a baby, getting life insurance is recommended.
Myth #9: Non-Working Spouses With Kids Don't Need Life Insurance
If you or your spouse is a stay-at-home-parent and/or doesn't earn a salary, you might think life insurance isn't necessary. Not true. Taking care of a child full-time is absolutely a job. And it will cost time and money to replace.
Not only are there daycare costs to consider, but you may also want to afford ongoing therapy services for the surviving parent and children. Losing a spouse/parent is traumatic.
Replacing the various responsibilities performed by a homemaker is easier when you have a life insurance policy to fall back on for financial support. And, the surviving working spouse may need to take an extended leave of absence from his/her job to grieve, sort through family affairs, find childcare, and adjust to a major lifestyle change.
Myth #10: Life Insurance Benefits Are Taxable
You may be worried that your beneficiaries will owe a big tax bill on your life insurance benefits when you die. Well, guess what? The vast majority of death benefits are tax-free and do not even have to be reported to the IRS. If you have a complex policy, taxes may be owed to the IRS if it earns interest payments on top of the policy amount.
If you buy a term life policy, which is the most popular type of life insurance purchased today, the benefits are not taxable. After your beneficiaries submit a claim to your insurer after your death, they will literally get a lump sum of cash that they can use however they see fit.
In fact, the higher your income, the more valuable the tax-free death benefit. The higher your marginal income tax bracket, the more you have to make to generate the same amount of after-tax death benefit amount.
See: Life Insurance Tax Questions Answered
Don't Make My Life Insurance Mistake
Currently, I have a $1 million, 20-year term life insurance policy that will expire when I'm 60. I bought it last year through PolicyGenius when I wanted to double my coverage after having a second child. At age 40, I was able to get a no-medical-exam policy for less than $500/year or $41.50/month.
But funny enough it took me over six years to get a good rate. Why? I just assumed I was getting the best rate with USAA because I already held home, auto insurance, and CDs with USAA.
What I didn't realize until last year was that I was vastly overpaying for life insurance for six years because I didn't shop around. To save money on any type of insurance, the recommendation is to shop around every two years.
As soon as I saw how much money I could save through PolicyGenius, I went through the signup process and got double the life insurance with a new carrier for less money.
If you want to buy life insurance, or even just check if your existing policy is priced well, check out Policygenius today for free and with no obligation.
Readers, at what age did you purchase life insurance? Were you aware of the above life insurance myths? Did you make any mistakes with buying life insurance or not buying it for that matter?
Thanks for the article. Looking at my paystubs I pay $16.32/month for my work life insurance premiums (~$700K policy). I am 38, 3 young kids (8, 5, and 2), with no major health issues. But I am 5’9″ and 205lbs. I haven’t gotten a quote yet but I figure it will be quite a bit higher than the $16. Since I plan on being FI within 5-7 years I don’t see the need to pay more now to lock in a lower rate.
Also, social security provides a pretty good survivor’s benefit for a widow with kids.
And many funeral services are a complete scam IMO. You can get your loved one cremated for $1500 or less. Host a family get together, maybe at someone’s house. Maybe pay someone to MC. Spread the ashes at meaningful locations to the deceased and say goodbye. Maybe $3K in total. *This is what our family has done for several relatives who have passed over the last few years. I understand that some people will want to do more but it doesn’t have to be that way.
Worth seeing what type of quote you can get. My doctor would probably recommend you lose 40-50 lbs though, as I’m 5’10” and she told me to get down to 155 lbs.
Losing weight is actually a great goal to have to THEN apply for life insurance.
You know what you need the most. Don’t think final life insurance is a scam. Some people want other ways to honor the dead. It’s just like weddings.
Getting $700k coverage through your employer at that rate is a great benefit. When I had employer coverage I only had a small fraction of that.
I got term life insurance shortly after getting married. Since I always had life insurance from my job, I minimum made sure I had enough external to cover the cost of the house. Once the kids were on the way, enough to cover the house and projected college costs. When you have dependents and are in the US the Social Security Death Benefit can help cover gaps you would have in insurance. As the kids have gotten older, and one of my kids is now out of college, as suggested here, I canceled one of my policies. As the house is getting closer to paid off we’ll look at dropping one or both of the others.
lock in and insurance being expensive were the two myths I had to overcome myself. Especially the lock in. Long term financial commitments always give me pause.
All you young ‘uns out there should pay heed to this one :-)
I hope young folks do. Getting a 30-year term policy at around 30 years old is the best age to get affordable life insurance. I should have done so, but didn’t b/c I didn’t know better. Instead, I got a 10-year term policy at 35, two years before I had my son. So dumb.
Hello, I’m an insurance provider and it baffles me to know so many within my community (Black) look at life insurance as a rip-off or it’s not my problem, I’ll be dead. To me it’s irresponsible. Thank you for sharing!
Fascinating had no idea. The “not my problem” attitude is TERRIBLE. That must mean they don’t create wills, a death file, or a revocable living trust to make it easier for survivors to manage the estate.
Life insurance is sort of a complicated subject, it’s hard to discuss a topic that involves your mortality. I’m 52 and had a Universal Life for $1 Mil, that I just changed to a term policy. My previous policy was building cash value, but I just figured I would take the premium savings and invest it myself. I think I can do a better job. Very informative post, as usual Sam!
Yes it can be uncomfortable to discuss anything around our mortality. For example, I delayed asking my parents to fill out a death file for a long time. I didn’t want to make them think about their aging, and I just felt awkward about it. But when I finally did, they were completely understanding and open to it. Unfortunately, neither of them have sent me back any information within the time I suggested (6 months). So I need to start bugging them about it or another 6 months is likely to pass without getting any vital info back!
Glad to hear you reassessed your situation and found a more suitable life insurance policy that suits your current needs!
I was wondering about the question of buying life insurance for children. I was told you only should buy life insurance on those making an income, or spouse.
It really depends on your family’s needs and possibly your child’s health or activities. There are life insurance policies for children as well as riders. Riders for children are an extension of a parent’s policy. The death benefit max may be lower than purchasing a stand alone policy, but child riders can be lower cost and can frequently be converted into a stand alone policy once they reach adulthood.
Some term life policies for children can also be converted into whole life when they reach 18. If you desire a whole life policy for your child as they enter adulthood, this is one way to save on premiums while they are a minor since term policies are generally lower cost than whole (aka permanent life insurance).
One thing you need to consider about life insurance for a minor is that you are locking in a life amount and premium for a certain period of time. The minor may develop a health condition that dramatically alters future insurability. Many years ago the was a specific life product for minors called a “Jumping Juvenile”.
Hence, all the more reason to get life insurance early on right? Before some health issue comes, that makes life insurance unaffordable.
Thanks Sydney. I really needed this article when I was in my 20s. I didn’t understand life insurance at all. I only had my work policy for many years. And I t wasn’t until I approached 30 that I decided to buy my own private policy. I upped my coverage again when I had kids and feel very secure now.
Glad to hear Jamie!
Thanks for writing this article Sydney. I was also hesitant on getting life insurance because it was confusing. But the more I learned about it and the more simple it became to compare quotes without any cost, the more it made sense.
Through PolicyGenius, I got a $500,000, 30-year policy at 31 when my son was born. It was less than $25/month. It provides peace of mind.
And if we want to cancel the policy in the future, we can at any time. In the meantime, we are focused on paying off our house within 20 years and all debts and sending him to college.
That’s fantastic to hear Nancy. Yes, life insurance can seem overwhelming at first because there are so many different types. But it’s really not that complex especially since term life is the most common by far and is very straight forward. I always suggest people look into term life first since it fits the majority of people’s needs.