We all think we know about life insurance. After all, how complicated can it be? Well, in fact, the whole area of life insurance can be fairly complex. For example, take the following five commonly held beliefs. In fact, these are myths. Here’s why:
I don’t need coverage because I’m single and have no dependents. The idea that only primary breadwinners need life insurance is old school. Consider how much a homemaker is worth; probably more than you think, especially when it comes to child-care and household maintenance costs. As well, life insurance may be desirable, even for single individuals, to cover personal debts and end-of-life bills such as funeral expenses.
My employer-paid coverage is sufficient. Maybe – or maybe not. If you have dependents or know that you will need extra coverage for estate taxes upon your death, you may need more than your employer provides.
My coverage should be twice my annual salary. How much life insurance you need depends on your personal situation – but the rule of thumb is that coverage should be computed based on outflows, not inflows.
I’m better off investing than buying insurance. It depends on how much money you’ve accumulated. You’re taking a big chance by depending solely on your investments to cover emergencies. You may not have enough, especially in the early years of saving. Even if you do, you could deplete your retirement nest egg. Then what?
My premiums are tax-deductible. Probably not. The only time personal life insurance is tax-deductible is when the policyholder is a self-employed business owner, and the coverage is used as asset protection for the business owner. Then, it’s deductible on the Schedule C of Form 1040.
Do these debunked myths make you think? If so, your advisor can help you determine if life insurance is right for you based on your individual financial circumstances and goals.