Common Life Insurance Myths Busted

While death is uncomfortable to think about, a reluctance to confront it is detrimental to the long-term family and financial planning. Life insurance plays an important role in determining what happens after we’re no more: what our heirs do with our assets, how our loved ones cope with our loss (emotionally and financially), and how our debts are settled. Even if death feels like a far-away abstraction, delaying the process of applying for life insurance isn’t wise. What, in fact, keeps many people from purchasing life insurance are some persistent myths about it. 

Listed below are a few such myths that have no basis in reality:

You Don’t Need Life Insurance if You Have No Dependents or Are Single

A life insurance policy is an important safety net for the policyholder’s children and spouse. But, regardless of their relationship with the policyholder, beneficiaries can use the proceeds to:

– Ensure they stand to inherit something after the debts of the policyholder are settled by the estate, or settle debts not discharged in death

– Avoid selling assets to pay off a home equity line of credit, a first mortgage, or other such secured loans.

– Cover the final costs of the policyholder (funeral and burial expenses), if they die without enough savings. 

Life insurance proceeds can also provide more financial protection to beneficiaries that are outside the immediate family of the policyholder. Insurance proceeds frequently benefit immediate relatives who don’t qualify as dependents technically, like minor children living full-time with a former domestic partner or spouse, or competent adult children above 18 years. 

You Need Life Insurance only If You Have Significant Income

Strictly in a monetary sense, the value of one’s life is closely related to their earning power. But this does not mean that the death of someone without significant income causes little or no financial damage. 

For instance, the death of a stay-at-home parent with household responsibilities and full-time child care can cause extreme financial strain for the surviving parent. 

The surviving parent must find alternative child care arrangements if he/she continues working. If not, they would have to modify their work schedule and as a result, forgo some income. And with time, this traumatic departure of a parent, and the absence itself can lead to different kinds of secondary effects, including necessitating mental health treatment for the surviving parent and children and potentially increasing the likelihood of the children interacting with the criminal justice system.

For Most People, Employer-Sponsored Life Insurance Is Enough

Generally, employer-sponsored life insurance is considered a beneficial supplement to a policy purchased on the open market. However, it is not going to be enough on its own. If you switch employers, employer-sponsored life insurance is worthless, since it’s often not portable. 

So unless you plan to stay with your employer for a long time and your income is modest, your employer-sponsored policy will not be adequate.