5 Myths About Life Insurance
1. $1 million is enough…This might sound like it is, but most of the time it really isn’t enough. Life insurance needs are calculated in various ways, but experience has taught us that most individuals want their spouse to be taken care of for the rest of his/her life if death were to occur. Moreover, they might want to make sure the kids attend college, don’t want the spouse to have to work, etc. Well, if this is the case: $1 million might be enough to provide $40,000 a year before taxes [over 20 yr? 30yr?], which could scarcely cover these expenses.
2. I can always get more…That may be true if you stay in good health. 1 in 2 American men will develop cancer in their lifetime. 1 in 3 American women will develop cancer in their lifetime.1. 1.7 million Americans are diagnosed with diabetes each year2. Every 43 seconds, a person in the United States has a heart attack.3. 26 million American adults have kidney disease.4. Do I have your attention yet? You can’t always get more life insurance, but I have rarely found a couple who has been married for 30 years who love each other less than the day they each said, I do. You buy life insurance because you love someone and want to provide for them, so don’t wait until you can’t.
3. All life insurance policies are the same…MythBusters could bust that in a matter of milliseconds. Not only is there a difference between permanent and term insurance - which you may already know - there are several different types of permanent policies and yes, term policies as well. Let me tell you a story about Tom: Tom was diagnosed with terminal cancer at the age of 64 ½. His doctor told him he had approximately one year to live, a little more if he was lucky. Tom had $2 million of term life insurance that was to end at age 65. He called his insurance agent about the policy and how to extend it. Unfortunately, the type of policy he purchased did not include the options necessary to do so. 15 months later Tom died and his wife received nothing in life insurance benefits. It is not always about getting the cheapest policy or even going with the guy who handles all your other stuff. It is about getting the right policy for you and your family.
4. My wife and kids don’t need life insurance…I know; I know. You are the bread winner, she is the homemaker, and what the heck do the kids need life insurance for? Just humor me for a moment, okay? Who would take care of the kids if your wife passed away when you are working? Who would take them to school or the doctor, clean the house, do the laundry, etc.? Most likely you would have to hire someone to help you. Guess what? It costs money and, in some cases, a lot of money. And, do you remember Myth #2? Not everyone is able to purchase life insurance. Let me tell you about little Lizzy, who was diagnosed with both M.S. and Crones Disease at a very young age, requiring large amounts of medication. She was strong, though, and determined to live her life to the fullest. Lizzy is now 29 years old with a baby girl - and has been the bread winner of her marriage for the past 5 years. Having the baby was extremely hard on Lizzy’s kidneys and she now has 0% function in one and 10% function in the other. Additionally, she is not eligible for a transplant due to her MS and Crones. She cannot get and has not been able to get life insurance for a very long time now. Luckily, her dad was a planner and bought a $100,000 policy on her as a baby. Funds that will inevitably be used to help raise her daughter.
5. I need to buy term insurance and invest the difference…Maybe, but not always. Everyone’s situation, family dynamics and goals and dreams about the future are different. Permanent life insurance is what we call “a lifetime tool.” Usually there is a legitimate need for it—replace income, pay off liabilities, equalize inheritances, supplement retirement income, pay estate taxes, and the list goes on. Be aware that term insurance can only accomplish a few of these things at most and may not last long enough to even do that. So be sure to weigh all your options thoroughly before jumping into either type of policy.
I have always said insurance is like Swiss cheese. It is not a matter of whether or not there are holes; it is a matter of how many holes there are. Unfortunately, these holes are different for everyone. So that leaves you with one option—work with a Life Planner to evaluate who needs how much and what type. Don’t try to do the job alone. It is too important to get it right the first time.
National Cancer Institute
American Diabetes Association, diabetes.org
CDC Heart Disease Fact Sheet
National Kidney Foundation, Inc., kidney.org