8 Life Insurance Facts and Myths
Updated January 1, 1 . AmFam Team
Life insurance — do you really need it or not? There are many misconceptions about life insurance that have people opting out and spending their hard-earned money elsewhere. We’re here to clear up the confusion. Let’s take a look at the myths and facts of life insurance, so you can learn the truth about this coverage once and for all.
Myth: Life insurance is too expensive.
Fact: Most people overestimate the cost of life insurance to the point where they don’t consider it at all. But the truth is, a healthy 30 year old could secure $250,000 of term life insurance for 20 years for around $30 per month – much less than most people think! Of course, your actual cost would depend on things like your health, age, coverage amount, and type of insurance applied for. And, when you look at life insurance as financial protection for those who matter most — meaning it could help them financially in the future if you were to die — it’s much easier to add it to your budget. Do your loved ones a favor and get a quote from an American Family Insurance agent (Opens in a new tab). They’ll help you determine the right coverage and help you find options that work with your budget.
Myth: Life insurance isn’t important right now because I’m young, single and don’t have any dependents.
Fact: This is one of the biggest misconceptions about life insurance. Some young people don’t believe that life insurance is important because they don’t have any dependents or many assets. But, getting life insurance when you’re young and healthy means you can secure a lower rate on your premium than you may be able to later in life since coverage typically becomes more expensive as you age. Also, when you consider your debts, like school loans, car loans, or credit cards, and final expenses such as funeral costs that would need to be covered in the event of your death, a life insurance policy can help remove the financial burden off your loved ones’ shoulders.
Plus, when you’re young and get a permanent life insurance policy, like American Family’s Whole Life coverage, you can start building cash value, which is a component of a permanent life insurance policy that allows you to borrow* from it later in life to go towards things like a home purchase, college tuition for your kids, retirement income, or even to invest in a business. The younger you start, the earlier you’ll start building that cash value. Check out all the ways cash value of life insurance can benefit you and your loved ones.
Myth: If I have life insurance through my place of employment, I don’t need a personal policy.
Fact: Though life insurance through your employer can be a great benefit, it might not be enough to provide for your family long-term. In fact, a typical payout is usually only around twice your base salary. And, if you were to lose or leave your job, the employer policy may not come with you. Having a personal life insurance policy ensures your family will be financially protected in the event you were to pass away.
Myth: My kids are all grown up, so I don’t need life insurance anymore.
Fact: You might be an empty-nester, but you probably still care about the financial well-being of your children. There are many benefits of life insurance that help at all stages of your life. It can help pay for end of life costs, like funeral expenses, or perhaps medical bills or hospice in the event you were to die with outstanding medical debt. Life insurance can also help pay for any debts you leave behind, like a mortgage or student loans. You can even buy life insurance with the intent to leave your children with an inheritance.
Myth: It would always be better to put my money in savings instead of towards life insurance.
Fact: Many people find that they can put money into savings as well as life insurance. As noted throughout this article, there are advantages to purchasing life insurance, such as having peace of mind that you have put some financial protection in place for your loved ones, should you pass away. Whether life insurance makes sense for you depends on your financial situation, but your agent can work with you to provide options so that you can decide how life insurance could fit into your budget and your savings goals.
As we mentioned before, there’s also a component of permanent life insurance policies that allows you to build cash value that can be borrowed* against, while also providing a death benefit for your beneficiaries. Read more to learn about the living benefits of life insurance.
Myth: I’m a stay-at-home parent so I don’t need life insurance because I don’t have an income that needs to be replaced.
Fact: Even if you aren’t bringing in an income because you are a stay-at-home parent, consider the cost of child care. Sometimes, the cost of child care itself amounts to one parent’s income. So, if your surviving spouse (or partner) needs to hire help, the life insurance death benefit can help pay for the often expensive costs of child care. When you’re a stay-at-home parent, you provide an exceptional benefit that is expensive to replace, so take a good look at what you contribute towards your family’s finances — even though it may not be a tangible paycheck.
Read more about life insurance tips for new families.
Myth: I won’t be able to get life insurance because I have too many health issues.
Fact: Usually, unless your health issues are super severe, you can buy some form of life insurance. If you have health issues like diabetes, heart problems or high cholesterol, your life insurance quotes might be higher, but in many cases they’re still available — and might still fit in your budget. Take a look at how a life insurance medical exam plays a role in how your premium is calculated.
Myth: Life insurance is too overwhelming! There are too many options...
Fact: Don’t worry! Life insurance doesn’t have to be difficult. There are many resources we provide to help you better understand your options. Your best resource is an American Family Insurance agent (Opens in a new tab) — they’ll be able to answer all your questions — or you can check out our life insurance coverages and resource center to help get you up to speed. The more you understand, the better you can protect those who matter most!
*Disclaimer: Any loans taken from your life insurance policy will accrue interest. An outstanding loan balance (loan plus interest) will be deducted from the death benefit at the time of claim. If the loan balance grows too large for the cash value to support it, the policy could terminate.
Related Articles
- Life Insurance for Children
You understand the importance of providing a secure financial future for your loved ones, and purchasing a life insurance policy on a child (with the ability to transfer ownership of the policy in the future when the child becomes an adult) can help you do just that. Let’s take a look at how a life insurance policy can help you proactively protect your loved one’s financial future.
Why Is Children’s Life Insurance a Good Purchase?
A life insurance policy is a purchase that can last a lifetime. Whether you purchase it on your child or grandchild, there are a number of benefits.
Low premiums
Since the cost of life insurance depends largely on things like age and health, purchasing a life policy when they’re young can lock in a low premium for the entire policy payment term.
Protect their ability to secure life insurance in the future
One of the biggest benefits of buying life insurance on a child is protecting their ability to secure life insurance in the future. When purchasing a permanent life policy on a child, your policy might include (if not, you might have the option to add) a Guaranteed Purchase Option (GPO) benefit to ensure the opportunity to purchase additional life insurance on them at certain ages and life events down the road without a medical examination or proof of health.
Build cash value
A permanent life insurance policy has the ability to accumulate cash value year after year. The earlier you start, the longer cash value can build, so when you purchase a life insurance policy for children when they’re young, the cash value has a lot of time to grow before they may need to use it. And, if ownership has been transferred to the adult child, they can even borrow against their cash value* if needed.
Should I Purchase Permanent Children's Life Insurance?
If you’re purchasing life insurance on a child, most people select permanent life insurance since it is built to last the child’s entire life. A permanent life insurance policy provides not only a death benefit, but, as mentioned before, the policy also has living benefits, like the ability to accumulate cash value.
Purchasing life insurance can be a practical and simple way to help protect your loved ones’ dreams. Check out American Family Life Insurance Company’s DreamSecure Children’s Whole Life permanent life insurance policy to learn more. Or you can also check in with an agent — they’ll be able to answer any questions you may have about children’s life insurance options through American Family Life Insurance Company.
This is a brief description of coverage and is subject to policy and/or rider terms and conditions which may vary by state. Fixed and guaranteed premiums are statements about the policy as determined at issue, and any changes made to a policy may affect the premium and are subject to our underwriting rules. The words lifetime, lifelong and permanent are subject to policy terms and conditions. DreamSecure Whole Life Insurance policies mature at age 121. Please check with an American Family agent for details on coverages and restrictions.
*Any loans taken from your life insurance policy will accrue interest. An outstanding loan balance (loan plus interest) will be deducted from the death benefit at the time of claim or from the cash value if surrendered. If the loan balance grows too large for the cash value to support it, the policy could terminate.
Policy Forms: ICC17-223 WL, Policy Form L-223 (ND) WL, Policy Form L-223 WL, Policy Form ICC17-224 WL, Policy Form L-224 (ND) WL, Policy Form L-224 WL
- The Difference Between Annuities and Life Insurance
What’s the difference between life insurance and annuities? It’s a common question. If you wonder what it takes to secure a financial future for yourself and those you love, it may be one you find yourself asking. And that’s a very good thing.
The bottom line: life insurance can help provide your loved ones with the financial peace of mind they deserve if you were to pass away. Annuities provide a tax-deferred way to grow money and provide an income stream. Both should be considered as part of a long-term financial plan.
Although both share some similarities, the overall purpose of each is very different. Let’s take a quick look.
Life Insurance Helps Protect Their Financial Future
When comparing life insurance and annuities, the biggest difference is that life insurance is designed to help protect against a financial loss for others after your death. Annuities on the other hand help protect you financially while you’re still alive.
Life Insurance helps to financially secure your loved ones’ future, since the death benefit can help with things like replacing your income and meeting important financial needs such as:
- Funeral costs
- Daily living expenses
- Mortgage payments
- College funding
When you purchase life insurance, you aren’t purchasing it for you — it’s really a purchase for the people you want to take care of.
If you want to find the right life insurance for you and your loved ones, American Family Life Insurance Company has the customized options you're looking for. If you want to learn even more life insurance, read up on the specifics of how life insurance works.
Annuities Help Prepare You for the Future
Think of an annuity as a tool that could help meet your retirement needs. The primary purpose of annuities is to create income for you, and this can be done in a few different ways. You can set up payments that last for your entire life, a specific period of time or a combination of both.
There are many potential benefits of annuities. Some include:
- The ability to grow account value on a tax-deferred basis
- The potential for a future income stream that can’t be outlived
- The possibility of a lump sum benefit that can be paid to a surviving spouse
How do annuities work?
You can buy an annuity by giving your insurance company either a single lump sum or making payments over time. The insurance company then invests your money — referred to as a premium or purchase payment — in different ways depending on the type of annuity you select.
You can buy an annuity that begins making payments back to you right away — this is called an immediate annuity — or if you prefer, annuities are available that delay making payments to you for an extended period, sometimes many years.
Start Planning for the Future Today
Life insurance and annuities work in tandem to protect a future for yourself and those you care for. Now that you have a high-level overview, discuss with your agent how these options fit your needs.
Annuities are long-term insurance contracts intended for retirement planning. Annuities are issued by Protective Life Insurance Company located in Nashville, TN, with administrative offices at 2801 Highway 280 South, Birmingham, AL 35223, through a relationship with American Family Brokerage, Inc., 6000 American Parkway, Madison, WI 53783.
- How Often Should You Review Your Life Insurance?
When you think about why buying life insurance is important, you probably think of financially protecting your family and loved ones in your life when you pass away. With life insurance in place, you can help ensure financial support for those that matter most. But have you spent time reviewing your life policy and ensuring it still meets your needs since purchasing it?
We recommend reviewing your life insurance every year. Having the right coverage in place means less for you — and those you care for — to worry about. Because so much can happen in 12 short months, it's important to make sure your policy is right for you and your family today.
To get you started, we’ve put together a list of 9 key reasons why you should review your life insurance policies every year.
- How Cash Value Life Insurance Works
You most likely purchased life insurance for the financial protection it provides your loved ones in the event of your death — but there can be some additional benefits to life insurance. Some life insurance policies, such as DreamSecure Whole Life Insurance offers the opportunity to build “cash value,” otherwise known as a living benefit.
That living benefit is the value in your policy that may be borrowed against or paid out if the policy is surrendered before death.* Let’s take a closer look at how cash value in life insurance works.
