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According to Bankrate, 3 out of every 10 people who don’t have life insurance express a desire to have coverage. Yet misconceptions prevent many from taking action. A striking 70% of these individuals have inaccurate expectations about the cost of life insurance, while younger demographics cite knowledge gaps about how life insurance works as their main reason for not being covered. Women tend to have less coverage than men—a concerning trend given the financial impact their absence would have on families.
Life insurance remains one of the most misunderstood financial products. Rather than being guided by facts, many people base their decisions on opinions, assumptions, and misinformation perpetuated by financial personalities, entertainment media, and even well-meaning advisors.
Let’s examine the six most common misconceptions about life insurance that prevent people from securing coverage for themselves and their loved ones.
Many Americans believe that the life insurance provided through their employer is adequate to meet their needs. This assumption can leave families underprotected when tragedy strikes.
Employer-provided life insurance, while a valuable benefit, usually offers coverage equal to 1-2 times your annual salary. Most financial advisors recommend coverage of 10-15 times your annual income to provide long-term protection for your family. The gap between what’s provided and what’s needed is substantial.
Consider what would happen if you suddenly passed away. Your family would need to replace your income not just for a year or two, but potentially for decades. They would face immediate expenses like funeral costs (averaging $7,000-$12,000), potential medical bills, and ongoing living expenses including:
A policy covering just one or two years of your income would leave your family with difficult financial decisions at an already emotionally devastating time.
Another limitation of employer-provided coverage is its lack of portability. If you change jobs, get laid off, or decide to start your own business, you lose this coverage. While some employer plans offer conversion options, the premium costs increase dramatically without the employer subsidy, making continued coverage prohibitively expensive.
In today’s job market, where the average person changes employers every 4.1 years according to the Bureau of Labor Statistics, relying solely on employer coverage is risky.
Group life insurance policies rarely offer the personalization options available with individual policies. You generally cannot tailor the coverage to your specific needs, add living benefit riders for illness or chronic care, or access cash value components that could provide financial benefits during your lifetime.
While employer-provided coverage is a good starting point, it should be viewed as a supplement to—not a replacement for—an individual life insurance strategy.
A harmful misconception is that stay-at-home parents or non-employed spouses don’t need life insurance because they don’t generate an income. This overlooks the tremendous economic value these individuals provide to the family unit.
If a non-working spouse were to pass away, the financial impact would be immediate and substantial. Consider the cost of replacing just some of the services typically provided:
According to Salary.com, the economic value of a stay-at-home parent’s work exceeds $178,000 annually when calculated based on the market rates for equivalent services. This represents a financial contribution that would need to be replaced if that spouse were no longer present.
Beyond the economic calculations, the loss of a stay-at-home parent requires the working spouse to take time away from career obligations to care for children during the adjustment period. This can lead to lost income, missed opportunities for advancement, or even job loss during an already difficult time.
Non-working spouses will incur the same end-of-life expenses as anyone else:
Life insurance for a non-working spouse is not a luxury—it’s an essential part of family financial protection that acknowledges their contribution to the family’s well-being and financial stability.
Many people assume that pre-existing health conditions, tobacco use, or previous coverage denials permanently disqualify them from obtaining life insurance. This misconception prevents countless individuals from applying for the coverage they need and could obtain.
The life insurance industry has evolved in recent years, becoming more sophisticated in its risk assessment approach. Actuarial science and medical data analytics have allowed insurers to accurately price risk for individuals with various health conditions. Conditions that might have been automatic declines in the past may now be insurable, though perhaps at somewhat higher premiums.
For example:
According to LIMRA, an independent life insurance research organization, 50% of those surveyed indicated they would be more likely to purchase life insurance because of no-exam options. These accelerated underwriting programs use data analytics, prescription histories, and medical records to evaluate risk without requiring a physical examination.
No-exam policies are available with death benefits up to $1 million or more from some carriers, offering legitimate coverage options for those with medical anxiety or time constraints.
For those with more health challenges, specialized insurers and brokers cater to the “impaired risk” market. These professionals know which companies are most favorable for specific conditions and can navigate the landscape of underwriting guidelines to find the best options for challenging cases.
Even applicants who have been declined in the past should reconsider their options, as:
The key takeaway is simple: never assume you’re uninsurable without consulting a knowledgeable life insurance professional who can explore all available options.
Another pervasive myth suggests that life insurance is only necessary for those with spouses or dependent children. This narrow view fails to consider the broader financial protections and benefits life insurance can provide regardless of marital status.
Single individuals often have financial responsibilities that don’t disappear upon their passing:
Without proper planning, these costs could burden family members or deplete the estate you intended to leave to loved ones or charitable causes.
One of the most compelling reasons for single people to secure life insurance early is to lock in insurability. Life insurance becomes more expensive and less available with each passing year. Health conditions can develop unexpectedly, making coverage more costly or even unattainable.
By securing a policy while young and healthy, individuals can:
Many single individuals without children still wish to leave a meaningful legacy. Life insurance provides a tax-efficient method to:
The financial impact of delaying life insurance purchase is substantial. For example, a healthy 30-year-old who waits until age 40 to purchase a $500,000 whole life policy might pay 50-80% more in annual premiums. This cost difference compounds over decades of coverage.
Life insurance should be viewed as part of a financial plan for individuals at every stage of life, not merely as income replacement for those with dependents.
One of the most damaging misunderstandings about permanent life insurance, particularly whole life, is evaluating it mainly as an investment vehicle using rate-of-return calculations.
Life insurance is legally classified as an asset, not an investment. This distinction is crucial for understanding its role in financial planning. An asset provides value and utility beyond simple financial return calculations.
When you purchase a home, you factor in more than just appreciation—you consider utility, security, tax benefits, and the ability to leverage equity. Similarly, whole life insurance provides multiple benefits that extend beyond cash value growth rates:
One of the most overlooked advantages of cash value life insurance is its ability to help recapture opportunity costs through policy loans. When you make major purchases with cash or external financing, you sacrifice either:
With a properly structured whole life policy, you can borrow against your cash value while the insurance company continues crediting growth on your full cash value amount. This arrangement allows you to finance purchases and maintain growth on your money—a capability not found in traditional savings or investment accounts.
Rather than asking “What’s the rate of return?” the better questions to evaluate permanent life insurance are:
When viewed through this more appropriate lens, permanent life insurance can be a valuable asset class within a diversified financial strategy rather than a poor-performing “investment.”
Age-based misconceptions about life insurance can prevent people from obtaining coverage during periods when it would be most beneficial and cost-effective.
Many young adults delay purchasing life insurance, believing it’s something to consider later in life. This perspective overlooks several important factors:
On the other end of the spectrum, many older adults assume that life insurance is no longer available or affordable for them. This misconception prevents them from addressing important financial needs:
Most insurance companies offer new policies to individuals from 14 days old up to age 85, providing options across nearly the entire lifespan. While premiums increase with age, appropriate coverage solutions exist for almost every life stage.
Given these common misconceptions, how can you make sure you’re making informed decisions about your life insurance needs?
Start by calculating your true life insurance needs rather than relying on general rules of thumb. Consider:
Life insurance is complex, and the right solution varies significantly based on individual circumstances. Work with professionals who:
When evaluating life insurance options, consider both immediate protection needs and long-term financial strategy:
The COVID-19 pandemic has prompted many Americans to reconsider their life insurance needs. According to industry surveys, awareness of the importance of adequate protection has increased since 2020.
Understanding and moving beyond these six common misconceptions allows families to make more informed decisions about their financial security. Life insurance isn’t merely a product for certain demographics or life stages—it’s a versatile financial tool that can provide valuable protection and benefits throughout life’s journey.
Whether you’re young or old, married or single, employed outside the home or managing household responsibilities, life insurance deserves consideration as part of your financial plan. By looking beyond the myths and misconceptions, you can make sure your loved ones and financial objectives receive the protection they deserve.
For personalized guidance on your life insurance options, contact McFie Insurance at 317-912-7000. We provide education, illustration, and policy services in all 50 states, helping clients understand how to maximize their coverage while minimizing costs.
Tomas P. McFie DC PhD
Tom McFie is the founder of McFie Insurance and co-host of the WealthTalks podcast which helps people keep more of the money they make, so they can have financial peace of mind. He has reviewed 1000s of whole life insurance policies and has practiced the Infinite Banking Concept for nearly 20 years, making him one of the foremost experts on achieving financial peace of mind. His latest book, A Biblical Guide to Personal Finance, can be purchased here.
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