Busting 7 of the biggest life insurance myths
There are certain subjects where almost everybody seems to have an opinion. Life insurance is one of them. Some clients will tell you they don’t need it, some will say they already have enough of it, some will say they can’t afford it, and some may even claim not to “believe” in it.
As a financial advisor, it’s up to you to teach your clients about the real financial risks and opportunities that life insurance can address. Here are seven of the biggest myths that can leave your clients confused or misinformed, and how to bust them.
#1 Life insurance is only useful when you die
The true purpose of life insurance is not the payoff when you die, it’s the ability to manage this risk while you’re alive so that you can take care of your loved ones after you die.
With life insurance in place you know that even if you owe money on your mortgage or haven’t built a significant investment portfolio yet, you still have sound financial backing. You have taken the right precautions to prevent your family from being left in a vulnerable position.
This gives you the tangible benefit of financial risk management during your life as well as something equally valuable, even if intangible - peace of mind.
#2 I already have coverage provided by my employer, so I don’t need life insurance
This may or may not be true, but there’s no way to know for sure without conducting a proper insurance needs analysis. Why leave it to chance? If something happens and it leaves your child or spouse in a bad financial position, it may be impossible to fix later.
Speaking of spouses, it’s good to know that many workplace policies do not cover your spouse. The loss of a stay-at-home parent can have far-reaching financial consequences for a family, so this must be part of your overall needs analysis.
Other pitfalls to consider are what happens if you leave your job, if your workplace coverage changes, or if your health declines in the future. Ask your clients some key questions about their workplace coverage, and many will come to realize that it is not enough on its own.
#3 I do not own a home and I don’t have a family, so I don’t need life insurance
Having a home and mortgage is a common reason to need life insurance, however even if you don’t own a home there are other types of debt that could become someone else’s responsibility in your absence, such as a student loan, business loan or personal loan. The real question is: do you have any debt at all with a co-signer?
When it comes to family, we often think of protecting children as the primary reason for life insurance, but even without children there may be others who count on you such as a common law partner, fiancee, spouse or aging parent. The real question is: would anybody feel a negative financial impact if you were no longer in their lives?
#4 Life insurance is expensive
The cost of life insurance is influenced by several factors, including your age, health and the type of policy you choose. If you’re younger and healthy, it can be surprisingly inexpensive - perhaps a couple hundred dollars a year for hundreds of thousands in protection.
The key is to control the things you can. That means buying insurance sooner rather than later, while you are as young as possible. It also means taking care of yourself by maintaining a healthy weight, managing your blood pressure and blood sugar, and quitting smoking (this is a big one).
You can also choose your policy wisely. For example, you might find that term insurance is more affordable than permanent insurance. This is where a financial advisor can make all the difference. They can recommend the right policy and shop the market for the best price.
#5 I am too old or unhealthy to be eligible for life insurance
While being older or having a health concern might mean that you get less coverage for your money than someone who is younger or healthier, it is still almost always possible to qualify for life insurance.
A financial advisor can help you get to the truth of the matter and weigh your options, including a traditional insurance policy or a guaranteed issue policy that can offer coverage to just about everybody.
Even if your coverage is only enough to take care of end-of-life and funeral expenses, that is a financial burden that you may wish to cover for your beneficiaries.
#6 It is better to invest money than to get life insurance
It is technically possible to build up enough investments that you become “self-insured.” That means having so much money saved up that, even if you were to become ill or pass away, your family would be completely fine without your income. While this is an admirable goal, most of us are not quite there yet.
Until you become independently wealthy, think of insurance as a crucial financial backstop that can provide for your loved ones if you are ever unable to do so yourself.
#7 Stay-at-home parents do not need life insurance
Parenting is one of the toughest jobs around, and if you ever doubt it, just consider the financial repercussions for a family that loses a stay-at-home parent.
For the surviving parent, there is a high likelihood of missing work during a period of grieving. Although this can vary, six months to a year or more would not be out of the ordinary.
Then consider the costs of hiring childcare. Even at a modest wage, it could easily add up to tens of thousands of dollars per year for a number of years. A solo parent might find that they incur other expenses too - such as help with housekeeping or meals.
Investments and insurance are the foundation of a good financial plan. Whether you are young or old, single or married, with or without children, just starting out or already established, these tools work together to build wealth and protect it.
One of the challenges of being a financial advisor is patiently working through all the myths that can prevent people from putting their plans together. But the reward is building a great advisory practice by helping Canadians become better informed and financially stronger than ever.
