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Busted – Common Myths and Misconceptions Surrounding Life Insurance

There are plenty of things in life that should be debated: HBO or Netflix, is NASCAR a sport, cheese or pepperoni, and the quality of the How I Met Your Mother finale; the importance of life insurance shouldn’t be one of them. However, it’s estimated that there are approximately 15.3 trillion dollars worth of unmet life insurance needs in the United States, meaning many people are debating it, and life insurance is losing.

There are many myths and misconceptions surrounding life insurance. Whether it’s regarding the difficulty to obtain it, the perception that you won’t qualify, or that you just don’t need it, people are being deterred from purchasing a life insurance policy that could protect them and their family’s future well being.

So, without further adieu, let’s take a look at some of these common misconceptions about life insurance.

Myth #1: Senior citizens can’t get life insurance.

Busted: It’s true that life insurance costs increase as you get older. It’s not true that you can’t get insured once you become a senior. The perception that you are uninsurable as you enter your senior years is far from the truth. There are still many affordable rates that seniors can obtain. When insurance companies evaluate you for a policy, they determine the likelihood that you’ll cash in on your policy during its term. If you are healthy senior, your age won’t be as heavy of a factor as you’d be led to believe.

Myth #2: Life insurance is too expensive.

Busted: Approximately 80 percent of people over estimate the cost of life insurance. Millennials have been shown to over estimate life insurance expenses by 213 percent and Gen-Xers by 119 percent. Many people think that it will cost them around 1,000 dollars/year, when in reality it can cost as little as 150 dollars/year.

Myth #3: You’re better off saving or investing your money.

Busted: Life insurance is an investment. Though it might not present itself in the form of luxurious vacations or stock portfolios, it’s an investment in your future and your family’s future. Even if the benefits aren’t immediate, the money you’re putting in each month isn’t just getting thrown away; it’s helping you be more prepared for life’s curveballs.

Myth #4: Only the breadwinner needs life insurance.

Busted: Just because someone doesn’t bring home the largest check in the house, doesn’t mean his or her contributions aren’t valuable. A stay-at-home parent has a lot of responsibilities that keep the day-to-day activities on track that aren’t necessarily quantifiable in the form of a single check. If something were to happen to the “non-employed” or lower salaried parent, life insurance can help cover the costs of the jobs that they contributed to the household, including childcare and home maintenance.

Myth #5: You’re too young to be buying life insurance.

Busted: Being young is one of the best ways to save money on life insurance. Buying a plan as a healthy person at the age of 30 can cost you around 12 dollars per month, whereas that same policy can cost you 32 dollars per month if purchased at the age of 50. Additionally, more than just the worry of increased costs, there’s always a chance you won’t even be able to qualify for a policy after certain things happen later in life. Your insurability can change in the blink of an eye and is never higher than when you’re young and healthy. In three, five, or even10 years, there are plenty of things that can happen that could make getting life insurance less of a reality, which is when you will probably need it most. When you’re young and in good health, premiums will most likely be lower and insurability higher, saving you money in the long run.

Myth #6: You’re single and don’t have dependents, so you don’t need it.

Busted: Just because you don’t have anyone who directly depends on your income now, doesn’t mean you can’t plan for it now. Getting life insurance before these major life events can help lock in a lower rate. Additionally, funeral costs will be made the responsibility of your family (the average funeral costing thousands of dollars) and co-signed loans aren’t going away as they would become the responsibility of the co-signer.

Myth #7: The plan you have through your employer is sufficient.

Busted: Many times employer life insurance benefits provide a payout that is closer to one or two times your base salary. That base salary will typically not include commissions or bonuses either, which could impact the amount greatly. Generally, it is recommended for your life insurance policy payout to be somewhere between five and eight times (some experts even recommending 10-12 times) your annual salary. Additionally, if you leave your job, that employer benefit probably won’t be coming with you, leaving you vulnerable. Getting your own personal policy can help ensure you are protected and your family will be secure.

Life insurance is something you buy before you need it. Don’t let common misconceptions keep you from insuring yourself properly. By learning the facts and what fits best with your lifestyle, you can make an informed decision about your life insurance policy, and help prepare you and your loved ones for the future.

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The Importance of Life Insurance for Millennials

So, it turns out life insurance isn’t just for the elderly. Whether you’re planning to scale the Andes or binge another season of House of Cards, it’s pretty important for everyone to have it. However, less than 20% of millennials indicate that they would purchase life insurance. As a millennial, the feelings of being invincible and having all the time in the world are all too common; and much like the last piece of pizza, nobody wants to believe those feelings can ever disappear. But being prepared for the curveballs life may throw you can be beneficial in the long run. This is where life insurance comes into play. By insuring your life, you can help ensure the quality of your loved ones’ lives as well.

Common myths and misconceptions surrounding the purchase of life insurance

Too expensive: On average, for someone who is 35 and under and doesn’t smoke, term life insurance can cost less than 30 dollars per month to get 250,000 dollars worth of coverage. To put this into perspective, a month of life insurance can cost less than a movie date.

Options are limited: There are many different courses of action when deciding what life insurance policy you should get. Whether you’re thinking on a budget, within a certain time frame, or for the long-term, you have got yourself some options.

Not a priority: Sure, rent, groceries, and that Spotify subscription can seem like more immediate expenses to devote your money to. However, by incorporating life insurance into your monthly budget, you also plan for those more distant expenses to make sure your family won’t be stuck with unexpected costs, such as funeral arrangements and co-signed loans, if something were to happen to you.

Reasons you should get life insurance in your 20’s and 30’s

Lock in those low premiums: Just like good scotch, life insurance gets more expensive with age. When an insurance company develops a policy for an individual, they consider the likelihood that the person will file a claim and cash in on their policy before the term expires. As various medical conditions become more probable and health deteriorates along with age, your initial premium will increase along with that risk. Buying while you are young and healthy is a good way to plan for future insurance needs because monthly premiums will be lower. A monthly fee in your 20’s can cost less than 30 dollars per month; whereas a monthly fee in your 40’s will cost around 50 dollars per month, that’s almost a 100% increase in price over 20 years.

Those student loans aren’t going away: Well, it’s 2016 and with that comes crippling student loans. Most young people don’t have the credit to sign these loans on their own and will need someone to co-sign with them. In fact, the average student debt for millennials is around 30,000 dollars and continues to increase. If something were to happen to you, the responsibility to pay off these co-signed loans will fall upon the co-signer which can be financially debilitating.

Funerals are expensive: Funerals can range in price from 7,000 to 10,000 dollars. That’s about a year’s worth of groceries for a family of four. Even the casket alone can cost up to 2,000 dollars. Having life insurance can help alleviate these costs and eliminate the financial stress from the grieving process of loved ones.

You have dependents: If there is someone who depends on your income, whether it be a spouse, child or parent, having that income stripped away unexpectedly can be a shock and can seriously impact the day-to-day life of these dependents. For example, getting life insurance now can help make sure your kids will have financial assistance for college or your spouse will be able to pay your mortgage if an unexpected death were to occur.

You can choose the plan that’s best for you: There are two types of general plans, term and permanent plan life insurance. Term is a life insurance policy for a set time frame such as 10, 20 or 30 years. Permanent life insurance will cover you for your entire life as long as the premiums are paid. With a permanent policy, you can decide between whole, universal or variable, all of which change depending on how you want to invest your money and the flexibility you would like to have. Term policies tend to be seen as a better choice if you are on a tighter budget; whereas permanent policies are seen as more expensive but have a better return over a longer period of time.

Benefiting while you’re still alive: If you opt for a permanent plan, this can double as a savings account, providing you cash value while you are still alive. This can help keep your money safe and provide you with more financial security throughout your lifetime as well.

The bottom line: Getting insurance while in your 20’s and 30’s can help more than just yourself and prepare you for future expenses. By thinking about the long-term while you are healthy and young, you can help strengthen your loved ones’ financial security in unexpected circumstances and get more bang for your buck.

Curious about what kind of coverage you should get? Check out this calculator to discover the best plan for you.

Life Insurance 101

If you don’t already have a solid life insurance policy, you probably have your reasons.  It’s too expensive, you could do better things with your money, it’s too complicated, you’re young and it’s pointless to buy it early, you’ve got it through work, or perhaps you just never got around to it.  These are common and intuitive ways to think about life insurance.  But they don’t acknowledge the importance of preparing for the worst and protecting the people who are most important to you.   Life insurance provides an extremely valuable safety net for the people close to you who would be affected by your death and the sudden change of direction their lives would take, no matter how old you are and what your life situation is.

Imagine that you just died.  Think about everything that would happen.  If you’re married with children, half of your income has just disappeared.  Maybe your spouse has to take care of the kids so he or she can’t go to work, or perhaps your spouse is so devastated that going back to work seems impossible.  Even if you’re not married, you’ve still got a family to take care of.  There would be all kinds of expenses or debts that would become a burden to your family immediately after your death.  If you’ve been supporting anyone close to you financially, they’ll be suddenly left without your assistance.  This is why life is insurance is so important; in the wake of complete devastation and sudden changes in their lives, the people you love most will at least take comfort in the knowledge that they’re covered. Life insurance isn’t just a luxury people buy for convenience and a vague sense of comfort.  It’s an essential way to provide security for loved ones who would otherwise be left in the dark after you’re gone.

So where to start?  First, know the basics.  With life insurance, you’ll pay a flexible premium for the term of the policy.  If you die during the term of your policy, your beneficiary will receive a fixed amount of money.  Your premium is calculated based on the risk of your death; the main factors are age, sex, and pre-existing medical conditions.  This means that current medical problems, smoking, and even dangerous hobbies can drive up your premium.

Life insurance is broadly categorized into two types: term and permanent (often called “term and “perm”).  With term insurance, the policyholder is covered for a set number of years, usually from 10 to 30. This is generally the cheapest form of life insurance; however, it has its disadvantages.  If you die after your term expires, your beneficiary will receive nothing.  Also, your premium is subject to change after every term, and it will likely increase as you get older. Lastly, term life policies have no cash value, meaning that they don’t accrue interest and you can’t borrow money against them. Permanent life insurance, by contrast, will cover you until the day you die.  It also includes a cash value component, meaning that your insurance company will invest the money from your premiums so that your policy will accumulate value over time.  Permanent life also carries the benefit of a fixed premium, meaning that a cheaper premium for a young policyholder won’t increase over time.  The main drawback of permanent life insurance policies is that they tend to have higher premiums.

So what kind of policy is right for you? Finding the appropriate policy means thinking about what and whom you would need to cover after your death.  If you’re single, think about your debts, future expenses, and loved ones.  Make sure your policy includes a portion that would cover anyone who is dependent upon you, would have to pay off your co-signed loans, or would be responsible for your funeral costs.  If you’ve got a family, you need to think about what your spouse’s financial situation would be without your income.  Make sure to include any significant expense, such as a mortgage, medical bills, legal fees, or other debts. If you have children, imagine them growing up and all the expenses that would accumulate; this would include childcare, health care, education, and all sorts of other costs. You also need to factor in retirement and estimate what your family will need once your spouse no longer has an income.  All of these expenses add up to an amount that is often higher than what most people expect. This means that you should spend time with your insurance agent to figure out a reasonable amount of coverage.  It also means that you should take a second look at your life coverage from your employer if you’ve got it, as work life policies tend to provide an inadequate amount of coverage, and you often can’t keep yours if you leave your job.

Once you’ve got a life policy, it’s important to pay attention to it rather than just ignore it.  Reviewing your life insurance every few years helps make sure that your coverage is still appropriate and your premiums are the best they could be.  Significant life events such as getting married, having a baby, or going through a divorce will likely change your finances to the point where you need to reevaluate your coverage.  An unexpected increase in income such as a raise or inheritance may reduce your need for a high death benefit, so it might be a good idea to convert from a whole life policy to a cheaper term policy.  Declining health will raise your premiums for term life insurance, and you might also need more insurance or a different mix of insurance.  In the event of a serious illness, it’s a good idea to review your policy to see if it offers any accelerated benefits to help you out.  If you’ve recently made significant improvements to your health, such as quitting smoking or managing your blood pressure, you may qualify for a better health class and could reapply for a lower premium.  It’s quite likely that many of these life changes will apply to you over the course of your life insurance term, so frequent reviews are necessary to make sure that your life policy reflects your current life situation.

Taking all of this information into account, we end up with a few general tips to get you started when deciding on a policy.  First, understand the importance of life insurance and what you want your policy to do for you.  It might be difficult to imagine all the grim consequences that would come with your unexpected death, but really thinking about these contingencies is the only way to ensure that your life policy will do what it’s supposed to do.  Second, take the time to calculate your death benefit. Work closely with your insurance agent and be prepared to come up with a number that is higher than you expected. You will probably be able to change your policy in a way that’s convenient for you, but it helps to look as far as you can into the future in order to feel confident that your initial coverage is suitable and durable.  Lastly, don’t forget about your life policy after you buy it. Think about the effects of your sudden absence as the years go by and make the corresponding changes to your policy. This will make sure that your life insurance responds in a way that offers a vital helping hand for your loved ones in the event of a tragedy.

M.E.