Tom Morey of LifeHealthPro writes that the benefits of life insurance “often swoop in like a superhero — arriving just when you need them…Life insurance coverage helps guarantee that life will go on.”
Here are 4 common misconceptions about life insurance and its values and benefits:
Misconception 1: Maintenance is not required.
The one constant in life is change. As your circumstances change, so do your needs, so you should periodically assess your life insurance policies (revisit the issue annually) to ensure that new needs are met. For instance:
- Policies expire.
- Appropriate beneficiaries can change.
- You may not be getting the best value for the premium.
- The policy may no longer financially prepare the beneficiary for the death of the insured.
Misconception 2: Life insurance is only for those married with children.
Life insurance can be valuable for young, savvy, single individuals to build plans early in life that will pay dividends later on. For example:
- Cash Value Life Insurance policies appreciate over time, and the longer some policies are held, the more they can gain in cash value and the more the death benefit can increase as well.
- It may make financial sense to purchase a life insurance policy now while premiums are lower, as opposed to later in life when the policy may cost more and not have the same value as an older policy. Permanent life insurance policies typically have fixed premiums, so, purchasing a policy at a young age can help the policyholder lock in a lower rate.
- Single people also leave behind final expenses, and mom, dad or another loved one would ultimately be responsible for handling the funeral arrangements, which can cost an average of $7,755, according to the National Funeral Directors Association. The 2012 Aflac WorkForces Report found that:
- 58% of U.S. workers don’t have a financial plan to handle the unexpected
- 28% have less than $500 in savings for emergency expenses
- 51% have less than $1,000.
Misconception 3: There are no financial benefits for the living.
Life insurance can be a key element to a lifetime financial plan:
- Policyholders have the option to borrow against a whole life policy’s cash value to help meet retirement needs, contribute to a down payment on a first home, pay college tuition or address outstanding bills – at interest rates lower than any other available option.
Misconception 4: Employers cover their employees.
LIMRA’s 2011 consumer studies show that, among adults who have life insurance, many are dependent solely on group coverage. However, people insured only through group life insurance have the lowest average amount of coverage. There are several reasons:
- As employers respond to these difficult economic times, many are decreasing life insurance policies or eliminating or reducing life insurance benefits.
- Only 41% of Americans own personal life insurance – an all-time low according to LIMRA.
- According to data from the National Compensation Survey, the value of employer-provided coverage is typically quite limited:
- For full-time workers participating in plans with flat dollar amount formulas, the median payment was only $15,000, compared with $10,000 for part-time workers.
- Workers in the lowest 25% earnings category were in plans with a median payment of just $15,000, while workers in the highest 25% were in plans with only a $25,000 median payment.
- For those covered under multiple of annual earnings formulas, only 27% of full-time workers were in plans that used a factor of at least 2 X their annual earnings, compared with 22% of part-time workers.
- Among workers in the highest 25% earnings category, only 30% received at least double their annual earnings.