Although life insurance may appear confusing or complicated, you’ll avoid common consumer mistakes when you have the right information. In this article, we debunk the top 7 common life insurance myths which worsen the confusion. Our objective is to make sure your coverage process becomes smoother and eventually you have a deeper understanding of what life insurance policy entails.
Let’s dive right in!
Automatic guarantee of a payout
Although the life insurance policy aims to protect your loved ones when you’re no longer there, the benefit payout is not automatic. Your beneficiaries must file a death-benefit claim with your insurer to get the funds. The claiming formality allows the insurance company to verify the occurrence of the risk that the policy covers.
Once this process is complete, the insurer pays out the proceeds into the trust, which then gives out the money to the rightful beneficiaries. It can take a few days or weeks for the funds to be available depending on the nature of the circumstances surrounding the risk occurrence.
Life insurance is expensive
New consumers are often apprehensive about taking life insurance citing its costliness. While the policy is an expense, it’s not necessarily expensive to acquire. You can discuss a suitable package for you with your insurer without breaking the bank.
The cost of premiums largely depends on your circumstances and the benefits you want. For example, the cost of key person insurance is often based on the value of the instrumental figure you wish to cover. At face value, the premium payments that a large company pays for its important personnel can appear costly, but worthwhile when you analyze the loss levels from his/her absence.
Single people don’t need life insurance
You could be unmarried but that doesn’t necessarily mean you don’t have dependents. For example, you could take out a life policy to provide death benefits for your employees’ dependents.
In a nutshell, dependents can range from workmates, spouses, parents, and friends of the deceased. Upon the passing away of the insured, their dependents and other close people will have to meet the relevant costs. These can include medical bills, funeral costs, and personal debts. Moreover, the death benefits could go to charity, creating a legacy for the deceased.
Life insurance is always an investment
While an adequately financed life insurance policy can become an investment eventually, this is not always true for some types. For example, term life insurance offers financial protection to your dependents only when you pass away within the contractual period. If you don’t or you’re unable to pay the monthly premiums, money committed to the insurance previously will go to waste.
Other types of policies like the whole of life insurance can come with a cash value, which offers similar benefits as investments. However, such opportunities can be costly to finance compared to alternative traditional investment prospects. Also, the returns might not be high enough when you are cashing out often.
One is too young for life insurance
No one is ever too young to cause a lesser loss after departure through death. Everyone has some value to friends, family, workplaces, and other dependents. Besides, there are policies designed for people of all ages, whether they’re minors or seniors.
Luckily, insurers charge young people fairer premium rates in the absence of life-threatening conditions. Applying for life insurance policies early will therefore offer your beloved’s financial backup should you pass on suddenly. Remember, death never discriminates against age when it strikes; it takes whoever and whenever.
Premium rates are fixed
Life circumstances are always changing and so will your premium rates when you apply for a life insurance policy. For example, if you take cover when sick, your insurer will charge you a constant premium fee even if your condition worsens. However, you can potentially bargain for fairer rates when your health improves.
In life insurance, there’s something known as reconsideration. It involves undertaking the underwriting process once more so that your insurer revises your premium rates. This can occur when there are processing errors that would lead to incorrect indemnification. If you pass the reassessment test, it’s possible to qualify for a lower-rate life insurance policy.
Employer-sponsored life insurance is enough
As earlier mentioned, employed people can benefit from policies like relevant business policy. Although these can cover some expenses triggered by your passing away, the benefits might not be sufficient for your dependents or debts.
Optimal coverage amounts to about ten times your income, which your employer’s group life insurance likely lacks. Besides, if you switch jobs, the re-application procedure might not be immediate.
Let us know other myths you have debunked on your own and we’ll be happy to add them to our list.
