by Mike Shaw
Life insurance can be a complicated product, Akron Ohio. As simple as term life policies are many elements must be considered carefully in order to arrive at the right type and amount. It is the technical aspects of life insurance that are less difficult for most people to understand. It is the calculating on how much life insurance coverage they need and why that causes them to wonder.
What you read will briefly take a look at the some of the most common myths surrounding life insurance and the truths that they distort.
Myth No.1: I’m single and don’t have any dependents, therefore I don’t need any coverage. Even a single person needs at least enough life insurance to cover the costs of personal debts, medical and funeral bills. If you are uninsured, you may leave a legacy of unpaid expenses for your family or executor to deal with. Plus, this can be a good way for low-income singles to leave a legacy to a favorite charity or other cause.
Myth No.2: I only need an amount of life insurance coverage equal to twice the amount of my annual salary I earn in Akron Ohio. You need an amount of life insurance equal to the amount that is actually required. In addition to medical and funeral bills, you may need to pay off debts such as your mortgage and provide for your family for several years. A cash flow analysis is usually necessary in order to determine the true amount of insurance that must be purchased. The days of computing life coverage based only on one’s income-earning ability are long gone.
Third Myth: I have life insurance through my employer that is all I need. This could be. For a single person and few bills, employer-provided term coverage is probably enough. However, if you have a family and kids your coverage through your employer, will not be enough. Plus, in most cases, that employer plan does not go with you when you leave that job.
Myth No.4: At least the cost of my premiums will be deductible. Not in most cases. The cost of personal life insurance is never deductible unless the policyholder is self-employed in Akron Oh and the coverage is used to insure the business. Then the premiums are deductible on the Schedule C of the Form 1040.
Fifth Myth: I need to have life insurance no matter what the cost. In some cases, this is probably true. However, if you have no debt or dependents and enough assets you may be better off self-insuring. If you have no debt and medical and funeral costs are covered, then your need for life insurance is eliminated.
Myth No.6: I should ALWAYS buy term and invest the difference. Not necessarily. The cost of term life coverage can become prohibitively high in later years; therefore, those who know for certain that they must be covered at death should consider permanent coverage. The total premium outlay for a more expensive permanent policy may be less than the ongoing premiums that could last for years longer with a less expensive term policy.
There is also the risk of non-insurability to consider, which could be disastrous for those who may have estate tax issues and need life insurance to pay them. But this risk can be avoided with permanent coverage, which becomes paid up after a certain amount of premium has been paid and then remains in force until death.
Seventh Myth: You will always better off buying term and investing the difference. Not always. Term life coverage can become very expensive as you get older, so those who know that they must have coverage until death should consider some form of permanent coverage. The overall premium outlay for a more expensive permanent policy may be less than the increased premiums that could last for years longer with a less expensive term policy.
Poor market performance can even generate substantial cash calls inside variable policies that requires additional premiums to be paid in order to keep the policy in force.
Eighth Myth: Variable universal life policies are always superior to straight universal life policies. Many universal policies pay competitive interest rates, and variable universal life (VUL) policies contain several layers of fees relating to both the insurance and securities elements present in the policy. Therefore, if the variable sub accounts within the policy under perform, then the variable policyholder may well see a lower cash value than someone owning a straight universal life policy.
Myth No.9: I should always purchase the return-of-premium (ROP) rider on any term policy. There are usually different levels of ROP riders available for policies that offer this feature. Many financial planners will tell you that this rider is not cost-effective and it should be avoided. Whether you include this rider or not, will depend on your risk tolerance and your other possible investment objectives.
A cash flow analysis will reveal whether you could come out ahead by investing the same amount of the rider elsewhere instead of including it in the policy. Riders are available to provide additional benefits that help you customize your policy.
Tenth Myth: I will be better off investing my money in Akron Ohio than buying life insurance of any kind. Complete nonsense. Until you reach the breakeven point of asset accumulation, you need life coverage of some amount. Once you amass $1 million of liquid assets, you can consider whether to discontinue, or reduce, your million-dollar policy. But you take a big chance when you depend solely on your investments in the early years of your life, especially if you have children. If you die without coverage for them, there may be no other means to provide for them after they have used up all of your saved assets.
In conclusion, these are just some of the more common mistruths concerning life insurance. The key idea to understand is that you eliminate life insurance out of your budget unless you have sufficient assets to cover expenses, several years after you’ve passed away.