Life insurance may be one of the most misunderstood products on the market.
Policy wordings might be filled with confusing medical jargon, as well as long lists of boring, detailed terms and conditions.
It can be difficult to understand the fine print, let alone compare products from different insurers.
But misunderstandings about life insurance often start long before people even begin considering a specific policy.
Purchasing life insurance may bring to mind things that are difficult to think about – contemplating one’s own death, considering what our family would do without us, even reviewing personal finances.
As a result, people may prefer to remain in the dark about life insurance. They may decide it isn’t necessary, or that they are somehow tempting fate by researching this product.
Unfortunately, life doesn’t always turn out how we plan.
Accidents and misfortune do happen, and that’s when life insurance could benefit you or your family.
Here we bust four common life insurance myths, so you can better assess your insurance needs.
Life insurance is only for grandparents.
A common misconception about life insurance is that it’s something only older adults have.
Many people’s first experience with the product may be receiving a payout when a grandparent or older relative passes away.
This might lead them to believe that the policy was purchased at retirement or later.
However, they might be surprised to learn that grandpa may have held that policy for much longer!
Life insurance is designed to fill the financial gap created when someone is no longer able or there to provide for their family.
For this reason, a policy may be a smart purchase for younger and middle-aged adults.
Things like serious injury, permanent disability and terminal illness may affect young adults, and could seriously impact their finances.
The benefit from a life insurance policy could pay the mortgage, cover school fees or take care of the many other day-to-day expenses that families often have.
Hopefully your loved ones won’t need to make a claim whilst you’re young, but you could have some peace of mind knowing that it’s there just in case they do.
Getting a policy is too expensive.
Budgeting is a big concern for many people, and may lead some to forgo buying life insurance. Families sometimes view policies as a luxury—something that won’t fit into an already stretched budget.
However, research shows that people often don’t have a good idea of how much life insurance really costs.
One study found that millennials tend to overestimate the cost of life insurance by 213%.
Let’s put that in perspective: A policy from Momentum Life—a leading life insurance provider in New Zealand— could cost around $11 per month for a 34-year-old woman who doesn’t smoke.
However, someone might overestimate the cost of this same policy at $24 per month.
That difference may be a lot for some families, especially when calculated over an entire year.
This could equal a weekly grocery bill or their fortnightly petrol costs.
I can’t get life insurance because of my health.
People sometimes assume that poor health automatically disqualifies them from getting a life insurance policy. However, with the range of products available, you may still be able to find cover.
Individual companies may cover different types of conditions, and some may even specialize in insuring higher-risk cases.
Depending on your health, an underwritten policy may not be attainable, but you could still qualify for a policy with no medical underwriting.
These policies often have lower cover limits and tend to be more expensive, but could still provide you with some measure of financial protection.
It’s OK to lie when applying for cover.
Insurance companies often ask people about their health or certain habits when they purchase a policy.
This could include a full medical history, or just wanting to know if you’ve smoked during the past year.
These details may be used to calculate how much you’ll pay in premiums or whether the insurer needs to add exclusions to your policy.
Stretching the truth (or straight up lying) when taking out life insurance may save you money in the short term, but could end up costing your family down the road.
The insurer will likely refuse to pay on claims if they discover that you lied during the application process. This could potentially leave your family financially vulnerable.
Honesty is best policy when taking out life insurance.
Be truthful about your health history and habits. You might also want to ask your insurer about any adventurous hobbies you may participate in, such as skydiving or scuba diving.
These may not affect your premiums, but might not be covered by every policy.
At the very least, you may want to be aware of this, so you’ll know what to expect should the worst happen.
Once you have a policy, you can forget about it.
Buying life insurance is often viewed as a tedious chore.
You may be eager to cross it off your to-do list and move onto more pleasant things. But, even if you already have life insurance, you still might want to think about it from time to time.
As your life changes, your life insurance needs may also change. The benefit amount selected when first purchasing may no longer meet your family’s financial needs.
Personal events, like growing your family or renovating a home, may mean increasing the benefit on your policy.
Even changes to your career might prompt a policy review.
It may be a smart move to look over your life insurance policy every year and assess if it still meets your needs.
Putting it all together
Too often the misconceptions around money matters stop people from considering steps that could be an important part of their financial plans.
By busting these life insurance myths, we hope that more families feel empowered to take control of their finances.
Having a solid understanding of life insurance could help you better protect the life you are building, and give you some peace of mind so you can get on with what matters most.