Top Ten Life Insurance Myths
Life insurance is not a simple product. Even term life policies have many elements that must be considered carefully in order to arrive at the proper type and amount of coverage. But the technical aspects of a life insurance policy are far less difficult for most people to deal with than trying to determine how much life insurance coverage they need in Akron Oh.
What you will read will briefly take a look the some of the most common myths pertaining to life insurance and the truths that they sometimes distort.
Myth No.1: I’m single and don’t have any dependents, therefore I don’t need any coverage. Even a single person needs at least enough life insurance to cover the costs of personal debts, medical and funeral bills. If you are uninsured, you may leave a legacy of unpaid expenses for your family or executor to deal with. Plus, this can be a good way for low-income singles to leave a legacy to a favorite charity or other cause.
Myth No.2: I only need an amount of life insurance coverage equal to twice the amount of my annual salary I earn in Akron Ohio. You need an amount of life insurance equal to the amount that is actually required. In addition to medical and funeral bills, you may need to pay off debts such as your mortgage and provide for your family for several years. A cash flow analysis is usually necessary in order to determine the true amount of insurance that must be purchased. The days of computing life coverage based only on one’s income-earning ability are long gone.
Third Myth: I have life insurance through my employer that is all I need. This could be. For a single person and few bills, employer-provided term coverage is probably enough. However, if you have a family and kids your coverage through your employer, will not be enough. Plus, in most cases, that employer plan does not go with you when you leave that job.
Fourth Myth: My premiums are tax deductible. Most often they are not. The personal life insurance premiums, in Akron Ohio are never deductible unless the policyholder is self-employed and the coverage is used to insure his business. Then the premiums are deductible on the Schedule C of the Form 1040. With that being said, the death benefit may then be taxed. So be careful.
Myth No.5: I absolutely MUST have life insurance at any cost. In many cases, this is probably true. However, persons with no debt or dependents and sizable assets may be better off self-insuring. If you have no debt and medical and funeral costs are covered, and then life insurance coverage may be optional.
Myth No.6: I should ALWAYS buy term and invest the difference. Not necessarily. The cost of term life coverage can become prohibitively high in later years; therefore, those who know for certain that they must be covered at death should consider permanent coverage. The total premium outlay for a more expensive permanent policy may be less than the ongoing premiums that could last for years longer with a less expensive term policy.
There is also the chance of being uninsurable, which could be disastrous for those who may have estate tax issues and is looking to use life insurance to pay them. To eliminate this risk with permanent coverage, it can be paid up after certain amount of premiums have been paid and then remains in force the rest of your life.
Seventh Myth: Straight universal life policies, in Akron Ohio are always inferior to variable universal life policies. Many universal policies pay competitive interest rates, and variable universal life (VUL) policies contain several layers of fees relating to both the insurance and securities elements present in the policy. Therefore, if the variable sub accounts within the policy under perform, and then the variable policyholder may well see a lower cash value compared to someone with straight universal life policies
Sub par market performance can also generate substantial cash calls inside variable policies that require additional premiums due in order to keep the life insurance portion of the policy in force.
Eighth Myth: Variable universal life policies are always superior to straight universal life policies. Many universal policies pay competitive interest rates, and variable universal life (VUL) policies contain several layers of fees relating to both the insurance and securities elements present in the policy. Therefore, if the variable sub accounts within the policy under perform, then the variable policyholder may well see a lower cash value than someone owning a straight universal life policy.
Ninth Myth: You should always add the return of premium (ROP) benefit in Akron Ohio. There are several different levels of ROP riders available for policies that offer this feature. Some financial advisors will tell you that this rider is not cost-effective and should be avoided. Whether you include this rider will depend on your risk tolerance and other possible investment objectives.
A cash flow analysis will reveal whether you could come out ahead by investing the additional premium amount, of the rider elsewhere, instead of putting it into the policy. Riders are available to provide additional benefits that help you customize your policy.
Tenth Myth: I will be better off investing my money than buying life insurance of any kind. Complete nonsense. Until you reach the breakeven point of asset accumulation, you need life coverage of some sort, barring the exception discussed in fifth myth. Once you amass $1 million of liquid assets, you can consider whether to discontinue, or at least reduce, your million-dollar policy. But you take a big chance when you depend solely on your investments in the early years of your life, especially if you have dependents. If you die without coverage for them, there may be no other means to provide for them after the use of your saved assets.
In conclusion, these are just some of the more prevalent misunderstandings concerning life insurance that the public faces today. The key concept to understand is that you shouldn’t leave life insurance out of your budget unless you have enough assets to cover expenses after your death.
