Buying life insurance that’s tailored to your needs can be an invaluable source of financial protection. Especially when it comes to protecting your loved ones during a challenging time. But how do you make sense of your life insurance needs when there are so many myths?
Luckily, you can gain more confidence in your decisions by arming yourself with the right knowledge. Here’s the truth behind some of the most common life insurance misunderstandings. By debunking these myths, you’ll have a better understanding of how to get the most out of life insurance.
Myth 1: Your employer’s life insurance coverage is enough
Life insurance through your employer is a pleasant perk. But it’s not your only option.
Darren Devine is a Sun Life Financial advisor and president of Devine & Associates Financial Services Inc. in Guelph, Ontario. “When it comes to workplace insurance policies, you don’t own the plan,” he explains. “The company does and they have the right to change it at any moment.”
That means changes in your employer’s plan could leave you with inadequate coverage just when you need it most. You may have options to convert your workplace insurance to another, private, life insurance plan. That conversion can have limited features and benefits compared to privately owned plans. This means your converted plan may not offer the exact coverage you want. Locking in private life insurance gives you more control and stability, so your coverage is there when you need it.
Myth 2: Life insurance is too expensive
Paying a monthly or annual premium – the fee you pay for your coverage – can feel like a burden. Purchasing permanent life insurance early is one of the best ways to lock in the most affordable pricing. “Age is the primary driver of cost in life insurance,” Devine says. “The younger you are the more affordable it is.”
If you’re on a budget, ask your advisor about term life insurance. This type of insurance refers to a shorter-term plan that provides coverage over a fixed period of time. This could be five, 10, 20 or more years. “If you’re young and healthy, your premiums could be as little as $30 a month,” Devine notes. “That’s a small price to pay for financial security.”
Term life insurance typically costs less upfront. It’s important to remember that your rate isn’t locked in for life. Instead, it increases during every renewal period. That’s why many term policies come with a convertibility feature that lets you upgrade to permanent life insurance. Permanent insurance provides lifelong protection, usually at a fixed rate.
Myth 3: You only need life insurance to cover funeral costs
When you get life insurance, you’re basically purchasing a tax-free death benefit for your family or beneficiaries. The death benefit is the amount of money that’s paid to your beneficiaries after you die. Sometimes, people see this money as a way of covering off the cost of their funeral. It can certainly do that. But you’ll also want to consider other financial needs your family may have to deal with when you’re gone. Ask yourself this: What expenses do they depend on you for right now? Could they cover those costs if you were to die?
“Your family may rely on you for various living expenses. For example, a mortgage or tuition,” Devine says. “The right life insurance plan can leave them with enough money to cover those expenses and any outstanding debts.”
Myth 4: You need the same amount of life insurance coverage as your partner
Your life insurance coverage needs depend on your individual debts and income levels, Devine says. And unless you and your partner have the same income, you likely need different plans. A pair of personalized policies ensure both you and your partner have the right coverage level. That way, you’re not paying a premium for “over-coverage” – more coverage than you truly need.