6 Common Myths About Life Insurance

We’re all going to die someday—a fact we all know but really don’t like thinking about in too much detail. Hopefully, our number won’t be up until we have lived a nice, long full life, but there are no guarantees. If you have people financially dependent on you, a life insurance policy is one of the best ways to ensure they will be taken care of in the event of your passing at any stage of life. Here are some common life insurance myths of which to be aware when pondering policy choices.

Work Coverage is Sufficient

If your employer provides a life insurance policy, you may think you are in the clear, but relying solely on these policies can be dangerous. If you are single and are simply concerned with providing funds for a funeral , and other miscellaneous expenses, they may fit the bill. But, for most people, the amount of coverage provided will not be enough for any real financial stability.

Premiums are Deductible

While you think a life insurance policy will give you some sweet deductions come tax-time, this is not the case for most people. Insurance premiums are only deductible for self-employed individuals who are purchasing the coverage as a form of asset protection for their business.

Coverage is only Necessary for a Working Spouse

It is natural to assume a policy is only necessary for the spouse bringing home the bacon, but don’t be so quick to dismiss the contributions of the ‘’homemaker,’’ and how their absence would affect the family on a financial level. Would you need to find daycare for your children, or hire someone to clean the home? Is your spouse currently providing care to an elderly parent, or was that the plan for the future? Don’t skip over getting  a life insurance quote for the stay-at-home partner.

You Should Buy the ROP (return-of-premium) Rider on Term Insurance

Like any other type of insurance, you may never end up actually needing it. With term insurance, you purchase a policy that is in effect for a certain number of years, and should you die during that time, a death benefit is issued to your family. But, if you survive, there is an option to pay an extra fee to have premiums returned to you. At first thought, this may seem like a good idea, but you may be better else investing this extra money elsewhere.  There are usually several different types of ROPs available, and it is probably a good idea to go over a policy with a financial planner for advice on riders and other elements of the policy.

Investments are a Better Idea than Insurance

Investing money wisely is certainly a great way to build up your assets and provide for your dependents. But, for most people, forgoing life insurance and relying on investments is not the way to go. Investments take time to build, and if live a long life, then, yes, you may have accumulated enough money to provide for a spouse left behind. But, if you were to die when you were younger, and the kids have yet to go to college and the mortgage is yet to be paid off, it is unlikely you will have accumulated sufficient funds to properly care for your family. No one likes to think of the possibility of dying young, but a possibility it is.

Whole Life Insurance is a Good Investment

Unlike term life insurance, which is only valid for a set amount of time—typically up to 30 years–, whole life insurance, or permanent life insurance, is valid your whole life span. There are different forms of this type of policy, and in addition to a death benefit, it builds cash value through the form of investments, the nature of which will depend on your risk tolerance. Many people may view these types of policies as a way of ‘’forced’’ savings, but for most people, this is not the case. First, other investment vehicles typically provide a better return, and secondly, it is estimated that 40 to 50 percent of people drop whole life policies within 10 years, meaning they are seeing very little return on the premiums already paid in.

Kelli Cooper blogs about all things personal finance from shopping for life insurance to how to manage credit card debt.