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Posted: 1 Sep

Common Misconceptions About Life Insurance

Common Misconceptions About Life Insurance

Most people appreciate the importance of a life insurance policy during the most challenging times of their life. Others learn the hard way after going through life-changing ordeals, while others learn from the experiences of others. Regardless of what makes you go for a life insurance policy; you can always be sure that you'll find what works best for your unique needs.

Even still, many people have been misled about life insurance. They hold on to false beliefs and myths about life insurance policies and what they are not. In the sections below, we discussed the common myths and misconceptions of life insurance and the facts you should get right. You'll also learn how to choose the best policy offered by the many insurance providers. That said, here are the six misconceptions to be aware of. Call us today to learn more.

Life Insurance is Costly  

The cost of a life insurance plan varies greatly depending on factors such as gender, age, health, the death benefit amount you want to purchase, and the chosen policy type. Ideally, life insurance is a versatile premium that accommodates everyone depending on their unique needs. So the notion that life insurance is only for the rich is a myth.

You can talk with your insurance provider and agree on a customized premium that will work best for you in the long run. If you take your premium at a younger age, the premium rate you'll pay will be lower for all the policies. For people on a budget, term life insurance is an excellent option since it's cheaper and covers a given period of time. You can also commit to the policy with a small investment with the option to extend coverage as your responsibilities and income grow.    

A Business Investment Can Yield Better Returns than Life Insurance 

Another common misconception is that investing in a business will yield better returns than a life insurance plan. And while this can be true, comparing a life insurance policy with a business is just not right. This is because a business is something you put in your energy and time and can still fail depending on several factors such as market conditions, competition, skills, and even luck. 

On the other hand, life insurance is a long-term financial vehicle that offers risk-adjusted returns. And unlike a typical investment, you do not need to manage the money you've put into a life insurance policy. Proceeds are also tax-free, plus you are contributing to the plan with predictable monthly amounts, making financial planning a lot easier. It's therefore not appropriate to compare a life insurance plan with business investment in terms of potential returns.

Claim Settlement is a Lengthy and Complicated Process 

A life insurance policy is a contract, which like any other, has a set of rules and regulations governing its use. Before signing up with an insurance company, you want to understand the rules behind the policy, including what can frustrate the claim process. More often, the policy is valid as long as the customer sticks by the rule, such as making monthly premiums. You should also understand when and how the payouts are to be made. For instance, most types of death, including accidents, illness, war, old age, riots, and natural disasters, are valid from the first policy year. 

However, some insurance companies will delay payments for up to 12 months if death occurs in the first policy year. Others have a suicide provision or clause that legally allows them to withhold death benefits if the policyholder commits suicide within the first or second policy year. To avoid such issues, always pay attention to each policy's clauses and unique rules. Still, most insurance companies will respond to a claim settlement within a month. 

Life Insurance through My Employer is All I Need 

Most employers will only cover your life insurance premium while you are employed. The employer also has the power to reduce the benefits or cancel them altogether if they go out of business or face a financial crisis. That means you'll be left stranded without cover when needed the most. 

Even if this insurance covers proceeds until retirement, it may not cover all your needs and dependencies'. The rising cost of living, children's education, medical emergencies, and caregiver costs are the other expenses that make it necessary to supplement your employer-provided insurance with supplemental cover customized for your future needs. Always consult a trusted insurance advisor to help you choose a customized policy from a reputable insurance provider.

I Don't Need Life Insurance If I'm Single, Young, and Healthy 

Most people think of life insurance as an exit strategy for the elderly or people with health conditions. However, this isn't the case. The idea that life insurance can only be redeemed after death is also misleading. Instead, life insurance can help cover your expenses after retirement, settle debts or even build wealth. If you are young, single, and healthy, buying life insurance gives you access to the best rates as your policy is perceived to be less risky.

As you grow older, this life insurance can help cover several expenses such as personal or student loans in case of any risk such as death, disability, or illness. This will further help protect your other investments and even family commitments. 

My Old Age and Pre-existing Condition Would Make Me Uninsurable 

Most term policies are designed to protect the loss of future earning potential. As you grow older, your earnings reduce, and the risk increases. This translates to higher premiums and lower payouts. The same goes for people with pre-existing conditions. However, this isn't to say that these two aspects will make you uninsurable. In fact, some insurance providers are very lenient with their rates. You always want to do your own research before choosing an insurance policy if you are approaching retirement or have a pre-existing condition.

Choosing a Life Insurance Policy  

There are various types of life insurance covers or policies. The most common types are term insurance and permanent life insurance. Others are universal, survivorship, mortgage, and credit life insurance policies. Each of these policies varies, and you need to work with a reputable insurance advisor to guide your selection.

Before choosing any of these policies, you must answer the following questions?

  • Why do I need a life insurance policy? Do you want a savings instrument or financial freedom after retirement, or do you want to leave enough amount of money for your dependencies after your death? Knowing what you want should be your first step.
  • What is the optimal policy you need and the premium you can comfortably pay?
     
  • Which policy offers the best deal, and who is offering them? You want to read the policy document and weigh whether it fully serves your needs. 

Factors determining how much you'll pay in premiums are your age, health status, budget, and personal needs. The death benefit amount and whether the policy has a cash value or not will also determine the cost of your life insurance plan. 

Get Started Today  

A life insurance policy is an important risk management tool that everyone should prioritize. Regardless of age, health, or employment status, the right insurance policy offers you a better plan for the future and a greater upside in case of illness, disability, unemployment, or death. Unfolding the above myths and getting the facts right will allow you to make the right decisions about your future and the lives of your loved ones. Call us to speak to a Vistaplan advisor today.

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About the Author - David Motkoski

David Motkoski—At the Helm of Vistaplan Financial Group

David is a well-respected insurance advisor with over 30 years of experience helping healthcare professionals, business owners, and their families secure their financial futures. He takes the time to make certain his clients understand the life, disability, and health insurance products they are purchasing, so they can make the right choices for their budgets, plans, and futures. CONNECT WITH ME ON LINKEDIN

Life & Disability Insurance for Alberta Health Care Professionals, Business Owners, and Their Families Since 1983