Life insurance can be an important part of a financial plan, but misconceptions about how it works may cause people to overlook their coverage needs.
You may have heard someone say they don’t need life insurance because they’re single, that coverage is too expensive, or that the policy provided through their employer is all they’ll ever need. While every situation is different, some commonly repeated beliefs about life insurance don’t always tell the whole story.
Let’s take a closer look at six common life insurance myths.
Myth #1: If You’re Single or Don’t Have Children, You Don’t Need Life Insurance
The reality: Life insurance isn’t only designed for people with spouses or dependent children.
Depending on your situation, a policy may help cover outstanding debts, final expenses, or other financial obligations. It may also provide an opportunity to leave a financial legacy for family members, loved ones, or charitable organizations that are important to you.
Your need for coverage depends on your individual circumstances, financial responsibilities, and long-term goals.
Myth #2: Life Insurance Is Too Expensive
The reality: The cost of life insurance can vary significantly based on factors such as your age, health, coverage amount, and the type of policy you choose.
There are many types and levels of coverage available, and some may be more affordable than people expect. Starting with coverage that fits your current budget and needs may also allow you to revisit your insurance strategy as your circumstances change.
Rather than assuming life insurance is out of reach, it may be worthwhile to explore the options available to you.
Myth #3: My Employer Provides Life Insurance, So I’m Covered No Matter Where I Work
The reality: Employer-sponsored life insurance can be a valuable workplace benefit, but that coverage may not always follow you if you leave your employer or retire.
Coverage amounts may also be limited compared with your individual needs.
Owning an individual life insurance policy can provide coverage that is separate from your employment and may offer additional flexibility when determining the amount and type of insurance that fits your situation.
Myth #4: My Beneficiaries Will Have to Pay Income Tax on Life Insurance Proceeds
The reality: In many cases, life insurance death benefits received by beneficiaries are generally not included in gross income for federal income tax purposes.
However, certain circumstances—such as interest paid in addition to the death benefit—may result in taxable income. Tax treatment can also depend on the structure and circumstances of the policy.
Because tax rules can be complex and may change, consider consulting with a qualified tax professional regarding your specific situation.
Myth #5: I’m a Full-Time Parent Without an Income, So I Don’t Need Life Insurance
The reality: A paycheck isn’t the only measure of the financial value someone provides to a household.
A full-time parent may provide childcare, transportation, household management, meal preparation, home maintenance, and many other services. If that parent were no longer there, replacing those responsibilities could create significant expenses for the family.
Life insurance may help provide financial resources to assist with those costs and help the household adjust.
Myth #6: I’m Already Retired, So It’s Too Late for Life Insurance
The reality: Life insurance needs don’t necessarily disappear at retirement.
Depending on your goals and the type of policy you own or are considering, life insurance may still play a role in estate planning, legacy planning, providing for beneficiaries, or addressing certain financial obligations.
Some policies may also include living benefit features that can provide access to a portion of the policy's death benefit under certain qualifying circumstances.
Whether life insurance makes sense during retirement depends on your personal situation, existing coverage, financial resources, and the legacy you hope to leave behind.
The Bottom Line
Life insurance isn’t one-size-fits-all. Your coverage needs can change as your career, family, finances, and goals evolve.
That’s why it can be helpful to periodically review your existing coverage and consider how life insurance fits within your broader financial plan.
If you have questions about your current coverage or would like to explore how life insurance may fit into your financial strategy, we’re happy to start the conversation.
Important Information
Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder may also pay surrender charges and have income tax implications.
You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
This material is provided for informational purposes only and is not intended as individualized tax, legal, or insurance advice. Consult the appropriate qualified professional regarding your individual circumstances.