What Life Insurance Is and Isn’t: 7 Common Misconceptions Debunked«« Back
When the subject of life insurance comes up, there are still many people who shy away from it, without giving it much of a thought.
Life insurance can offer tremendous value to an individual, given the right circumstances.
There are also very common misconceptions surrounding life insurance that do not help in making people understand what it is and what it isn’t.
Obtaining a life insurance may be ideal for your situation, but you may not realize it until you take the step in understanding what it is all about.
So allow us to discuss the common misconceptions about life insurance to help you make a decision that could very well change your life.
Here are the 7 Common Misconceptions on what Life Insurance really is:
1) Life insurance is too complicated to understand
Admittedly, the definitions of life insurance available to the public can be too technical to understand. Hence, a lot of people can’t be bothered.
But let us break down life insurance because it is in essence, it is actually a simple concept.
According to Investopedia.com, “life insurance is a contract between an insurer and a policyholder. This contract states that the insurer guarantees payment of a death benefit to name beneficiaries upon the death of the insured.”
We know that there are certain terms mentioned here that a normal person may not be familiar with. Let’s take this chance to cover the basics of life insurance.
The insurer is a company that offers a plan to a certain individual.
This plan, most often referred to as insurance policy is a legal agreement between the company and the person.
This agreement states that the individual pays the company a set amount, In exchange for this payment, the company will give a lump sum to the beneficiaries of the individual in case of his/her death.
So when the individual agrees to take the policy, he/she pays. When that individual dies, the company pays the loved ones left behind.
The individual who has the responsibility to pay the company for the insurance policy is called policyholder. This person is the owner of the plan, and can therefore make major changes to the policy.
Oftentimes, the policyholder is also the insured.
The insured is the person, whose death is insured, i.e. protected. The insurer will release the promised amount when the insured dies.
The loved ones who are designated to receive the promised money from the company in the event the insured dies are called beneficiaries.
These are the basic terms you need to know with regards to life insurance.
2) Life insurance is the same for everyone.
This is simply not true. Not all policies are created equal because they directly cater to people; and people’s circumstances are not the same.
Companies ( the insurers) create different types of policies to suit their clients’ profiles and needs.
If you are a 30-something working mother of two living in California, you need to obtain an insurance policy that is suitable for your age, current salary, medical condition, and location. This very same policy may not be well-suited for a 55-year old soon-to-be-retired man living in New York.
3) Life Insurance is a waste of money, an unnecessary cost.
We agree that the problem with life insurance is people are paying for something that they cannot touch or physically enjoy.
Life insurance is not like buying a house, a car or a new pool.
This does not mean that life insurance is not as valuable as those things mentioned. In fact in most cases, it is even more valuable.
People who are healthy and happy with their lives, tend to forget that death does not only bring grief and misery, but also unnecessary expenses.
In your death, your loved ones will have to deal with questions like:
How much to spend for the funeral rites and arrangement, including caskets/ cremation, flower arrangements, venue,and refreshments for the guests.
Who is going to pay for the mortgage, the car, kids’ needs and other day-to-day expenses now that a certain working member of the family has past away.
Who is going to pay for the current debts and obligations of the person who passed away?
You may not want to talk about these things while you’re alive, much less think about it; because let’s face it, they are quite depressing and stressful.
But stressing you out is NOT the goal here.
The goal is to let you know that getting a life insurance frees you from all the worry and stress.
Financial problems will arise after your demise, especially if your death is unexpected. The last thing you want is for your loved ones to deal with these problems at a time when you couldn’t help them anymore.
The death benefit amount offered by reputable insurers are typically large enough to cover funeral costs and to ensure that your loved ones will have a reasonable amount to continue on living without you.
If you get the right life insurance policy, your payment does not go to waste at all! This same cost secures the future of your loved ones beyond your death.
4) Getting life insurance is like betting against your life.
There are still some who think getting a life insurance means you are making a self-fulfilling prophecy. This is more an old way of looking at life insurance.
Life insurance is not made to challenge your faith and personal belief.
Whether you believe in religion, afterlife or predestination; the fact of the matter is you will never know when your time is up.
Matt Campbell was running at the 2018 London Marathon. He was 29, and a professional chef . He was at the prime of his life and in a seemingly excellent physical shape. In fact, Campbell have completed the earlier Manchester Marathon in under three hours.
But after covering almost 23 miles at the prestigious London Marathon, Matt Campbell collapsed and eventually, died.
What you need to understand is that paying for a life insurance is not really for you.
It is actually for the people you love and care about, the people who will have to pick up the broken pieces when you leave this earth.
5) Life Insurance is good for middle-aged folks who have health problems.
This is definitely not true. In fact, if you’re working healthy and young then this is actually the best time to get life insurance.
Generally, the younger you are, the less premium (insurance payment) you need to pay to be qualified for the whole death benefit.
If you start young, then you also have the potential to pay for the entire insurance policy before retiring from work.
A number of policyholders end up not keeping their life insurance because they stop working due to old age and illnesses.
So starting early is the key to ensure that your life insurance will be there when you need it.
6) Life Insurance is expensive.
There are many companies out there that offer life insurance policies. And because of their sheer number, the competition to secure clients is stiff.
These companies understand that they have to create good reasonably-priced life insurance policies for the public to even consider buying something that isn’t tangible at the moment.
Because of competition, companies also offer different types of policies that suit a variety of budget.
There are policies tailormade to average income earners, so you don’t have to worry about paying too much. You only need to find the plan with a premium that you’re comfortable to pay.
The key is to prioritize paying for your life insurance above other expenditures, especially those that are recreational in nature.
7) Life insurance companies are scammers and just want your money and leave you with nothing.
Admittedly there have been cases where clients of insurance companies feel that they have been cheated of their money.
Make no mistake that selling life insurance is a business and a business is established to generate profit.
This does not mean that such business model does not provide value to its clients.
While a life insurance is not a traditional investment product, it offers you protection and peace of mind.
Life insurance at its very core is not a sham. It offers great benefits and it creates a win-win situation for both the policyholder/insured and the insurer.
There are certainly dodgy insurers out there, but part of the responsibility to avoid scams lies on the client.
As the client, you need to research,examine, and choose a reputable insurer and the best possible insurance policy to meet your needs.
Don’t know where to start?
You can start by comparing insurance companies and the policies they offer.
Fortunately, in this age of technology, you don’t have to settle with known insurers or agents in your community. The policies they offer may not be the best one for you.
Take advantage of the internet and start comparing life insurance policies today.
To learn more about this step, click here.