Despite worries about the financial burdens their families would face if they died, one in three adults say that life insurance is a “low or nonexistent priority.” Others have a life insurance policy but aren’t quite sure how it works. These surveys show a fundamental disconnect between life insurance and the people who need it — a disconnect that’s leaving a lot of families unprotected.
If you’ve been putting off life insurance because you’re worried about cost or are unsure if you really need it, Great Homes Alabama is here to explain why everything you thought you knew about life insurance is wrong.
The Top Misconceptions About Life Insurance
1. It’s too expensive
More than half of all uninsured adults say they haven’t purchased a life insurance policy because it’s too expensive. While it is possible to spend a lot on a life insurance policy, most people don’t need the most expensive coverage. In fact, a 20-year, $250K term policy, could cost as little as a Netflix subscription for someone in their 20s.
2. I’m too young to need a life insurance policy
Think you don’t need to worry about life insurance until your funeral is on the horizon? Think again. Young and middle-aged adults are the people who need life insurance the most because they’re the most likely to have minor children at home. You may even have a stay-at-home spouse who depends on your income. Luckily, life insurance is also cheapest when you’re young, so coverage won’t break the bank.
There are many things that young adults think they are too young for, and life insurance is just one of them. While you are planning for your future, consider other important estate planning tasks such as creating a will, purchasing long term care insurance, or even looking into burial insurance. You’re not too young for it, but being young comes with a cheaper price tag.
3. I can’t get a life insurance policy because of a health condition
It’s true that a pre-existing health condition could lead to higher life insurance premiums. However, most people can find coverage one way or another. If you can’t pass a medical exam for a medically underwritten life insurance policy, you can apply for a policy that doesn’t require one. Simplified issue policies offer up to $500,000 in coverage and require only a few health-related questions, making them a good choice for people who want full coverage but can’t qualify for conventional policies. Or, if you only want enough for a funeral and other outstanding expenses, guaranteed issue policies cover everyone regardless of age or health status.
4. I have plenty of coverage through my job
Among people who do have life insurance, about a third have group coverage through their employer. While that’s a great start, it’s not enough for most families. Benefits for most group policies range from $25,000 to $50,000 — enough to cover end-of-life expenses, but not provide for your family’s long-term financial well-being.
5. I don’t need life insurance as a stay-at-home parent
Not everyone has access to health insurance through work — especially not stay-at-home parents. However, you don’t need to be the breadwinner to need a life insurance policy. With the high cost of childcare, the loss of a stay-at-home parent represents a major financial hit to families.
6. Taxes will take it all anyway
If you leave a big sum of money to your family when you die, won’t taxes take a big chunk of it? While estate taxes are no reason to skip life insurance, you’ll be relieved to know that most life insurance benefits aren’t subject to income or estate taxes. Beneficiaries only pay income tax on the life insurance interest if they opt for installment payments. Lump sum payments aren’t subject to income taxes. And while estates with a total value over $12.06 million are subject to federal estate taxes, most estates fall well under the taxable limit. While there are some situations where you may owe taxes on life insurance benefits, it’s not something most people have to worry about.
The truth is, life insurance isn’t expensive, complicated, or difficult to get. It is, however, an important part of protecting your loved ones if something were to happen to you. Instead of worrying about how you’ll provide for your family if you die, take action and do the one thing that ensures you can.
Shannon Holmes of Great Homes Alabama specializes in the neighborhoods of Greystone, Highland Lakes, Liberty Park, The Preserve, Ross Bridge, Blackridge, and Lake Wilborn, with emphasis on properties in Hoover, Vestavia Hills, Chelsea, Mountain Brook, and North Shelby County. Call 205-706-3975.
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