Life insurance is quite complex as compared to other insurance policies. This policy has numerous elements that require careful deliberation to be able to choose the right type and coverage duration. However, most people can handle the complexities of life insurance as opposed to deciding why they need the coverage and how much. Here is a brief explanation of popular myths associated with life insurance policies and the twisted reality.
The life insurance policy you have at work is enough
If you are single and living a modest life then the employer-paid coverage might be sufficient. However, if you are a family person or you need coverage to cater for your estate taxes after your death then extra coverage is very necessary in case the term policy paid for by your employer fails to meet all your needs. Also, if you are a real estate owner, you really need builders’ insurance.
Life insurance cover needs to be double your annual income
The amount of coverage an individual requires is based on his or her current situation. This is dependent on many other factors. Apart from covering your medical expenses and funeral bills, outstanding debts such as mortgages and your family well being must be considered. To establish the real amount of coverage that you need, a cash flow evaluation must be undertaken. Gone are the days when a person’s income formed the basis for computing life insurance.
If you don’t have dependents, insurance coverage is not necessary
Even if you are single you need insurance to cater for your medical bills, personal debts, and funeral expenses. If you are not insured, you might leave behind a legacy of accumulated debts to your executor or extended family. Having life insurance is an ideal way for modest single people to leave a good legacy to charities or another worthy cause.
The cost of premiums is normally deductible
The cost of life policy is not deductible except when the policyholder owns a business and uses the cover as asset protection. Under such circumstances, the premiums must be deductible.
A life insurance policy is only necessary for breadwinners
This is totally wrong. It is very costly to replace services previously provided by departed breadwinners. Therefore, it is sensible to insure against the loss of homemakers particularly daycare and cleaning costs.
Investing is much better than getting life coverage
Life coverage is very important regardless of the assets you possess. Depending entirely on the investment you have in your primary years is very risk particularly when you have dependents. In case you die without covering your family, they will hardly survive after your assets are depleted. Investing is not bad, but purchasing life insurance is also as important. On the other hand, you can get builder’s insurance when the construction of your estate is underway.
It is better to buy a term life policy
This is not always necessary. There is a big difference between permanent and term life cover. The term life policy might be very expensive in the coming years. Consequently, for those who want to be covered in their demise permanent coverage is the best option.
These are just but a few prevalent misconceptions relating to life insurance. The most important aspect to note is that you should budget for a life insurance policy to pay off your debts and expenses after your demise. You can also consult your financial advisor or insurance provider for further clarification.
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