Last week we took a close look at some insurance myths, mainly car insurance myths. This week I am hoping to shed some light on life insurance myths, contradictory to what most believe life insurance is an important part of your financial plan and understanding some common myths can go a long way in your decision process.
It’s Better to Invest Than to Buy Any Kind Of Life Insurance
When I used work in the life insurance industry this would always be the number response to life insurance and it is a very dangerous myth. Although this maybe a valid reason in the future for not having insurance, at the early stages of your accumulation phase life insurance is important. Chances are you have a mortgage, maybe student loans and other consumer debts at the early stages what if something were to happen to you today or in couple of months? Your investments would not be anywhere close to cover the debt obligations left to your family. Until you reach the breakeven point you will need some sort of life insurance.
I Should ALWAYS Buy Term and Invest the Difference.
Personally I believe most people are sufficiently covered with term insurance, however not ALWAYS! There are cases when permanent insurance is needed (estate equalization, taxation, funeral cost etc). In these cases term insurance will not provide sufficient coverage for your needs.
Life Insurance Won’t Pay If You Commit Suicide
This myth has been brought about mainly by movies; the fact is that suicide is often not directly excluded from life insurance policies. Often there is an exclusion period for suicide; in Ontario (and most of Canada) this period is two years. If you commit suicide within the first two years of your policy inception then no payout will be made, if it is past the two years then your full face value is paid out (assuming everything else is remains the same).
All Life Insurance Policies Are the Same
“No need to read my policy – they are all the same, if you die your beneficiary will get paid.” You should always read and fully understand a contract you sign, although the concept of life insurance is simple not every contract is the same. Some have certain exclusion, some term policies are renewable and convertible while others may not be and so on. The auto insurance industry is highly regulated and policies are standard, this is not the case with life insurance policy. Read through your policy when you receive it and ask the agent questions if things are not clear. Also you need to make sure that all the information on the policy is correct such as the insured’s name and the beneficiary’s contact information.
Insurance Agents Can Determine Your Insurance Needs
Most life insurance salespeople are looking out for their client’s best interest, however remember that most get paid a commission and this can sometimes create a conflict of interest. Do not rely solely on what your salesperson advises, determine your own needs prior to speaking with insurance agents this way you’ll at least have a rough idea of how much you’d need. If you are unsure about how much you need see this post on some guidelines in determining how much life insurance you need.
Here are 14 tips for purchasing life insurance.
Check out Clarifinancial for life insurance quotes from multiple agents and all anonymous.