There are many misconceptions about life insurance, and who should invest in it. Policies can be complex and difficult to understand, and life insurance has the unpleasant association with death, so it’s just easier not to think about it. 40% of adults have no life insurance, according to the Life and Health Insurance Foundation for Education (LIFE). Here are the top 7 myths about life insurance for young adults and the facts behind them.
- I’m young and don’t plan on dying soon.
It’s easy to put off the thought of death as a young person. But buying life insurance when you are young can save you money on premiums and get you the best possible rates. Waiting even one year to buy a policy will result in higher rates. There’s also no crystal ball that will tell you how long you’ll be sticking around. A good time to buy life insurance is when you are young- before you need it.
- But I have no dependents.
Life insurance isn’t necessarily something for your family to inherit; it is a way to cover medical bills, credit card debt and other bills you may leave behind, as well as funeral costs. Even if you don’t have children, your death could create considerable financial hardship for your family. If you’re married, would your spouse be able to pay rent/mortgage and other bills on one income? A life insurance policy would help your partner stay financially stable without the support of your income. Ask yourself, what financial obligations do I have that would need to be covered? If you don’t have a beneficiary to designate, you could plan make a donation to your favorite charity, after your financial needs are covered.
- It’s too expensive.
There are many options available, and a life insurance policy available for every budget. Term life insurance is an affordable way to maximize your coverage, especially at a young age. Term life starts with lower premiums based on your age, and increases over time. An insurance agent can help you find the policy that’s right for you. A recent study conducted by Life Happens and LIMRA showed that 25% of Americans said they needed more life insurance, but only 10% of those respondents planned to buy it within the next year. 63% said that it was too expensive, yet 80% had overestimated the cost. 25% of the respondents thought that a healthy 30-year-old would pay $1,000 or more per year for a $250k 20-year level term policy for a healthy 30-yr old. In reality, it would cost $150 per year, or just 41 cents a day.
- But I’m in good health.
You may be in great health today, which will help you get a better rate on life insurance. However, if you wait to purchase a policy, you could develop a medical problem that would affect your ability to get the coverage you want in the future.
- My health might disqualify me.
Not all policies require a medical exam- it’s possible to purchase a policy with simplified underwriting, which gets you protection with no exam. There are many companies that cover a spectrum of health conditions, including high-risk cases. These may come with a higher premium, but it is good to be straightforward about your health when applying.
- A savings account is enough.
You should always have some kind of life insurance, even if you have considerable savings and other investments. Some financial counselors recommend having enough insurance to cover 5 to 7 years of salary, and 10 years if you have kids or considerable debt. Even if you did have enough savings to equal a policy of $250k or $500k, if you died, your family may have to pay a 45% estate tax on that money.
- I have enough coverage through work.
It’s possible that your employee life insurance is adequate if you are unmarried, have no debt and live frugally. If you have a spouse and/or children, or student loans, you’ll likely need more coverage, since most employee plans will only cover one or two times an employee’s annual salary. Additionally, if you leave your company without having independent coverage, you’ll have to start at square one, and it may be difficult to get a policy, especially if your health changes. The best is to have a life insurance policy that does not depend on where you work. A workplace policy can be considered additional security. Find out how much coverage you’ll need by using this online calculator.