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AND THE TRUTH WHICH WILL SET YOU FREE
The life insurance industry is plagued with myths, misconceptions, and outright lies that prevent millions of Americans from making informed decisions about their financial future. These myths persist because they’re often spread by well-meaning but misinformed advisors, online “gurus,” and even family members who’ve fallen victim to these same falsehoods.
The truth is, life insurance myths can cost you and your family hundreds of thousands of dollars over your lifetime. They can leave your loved ones financially vulnerable and destroy your ability to build sustainable wealth. It’s time to expose these lies and reveal the truths that the financial establishment doesn’t want you to know.
Here are the 15 biggest myths you’ll encounter about life insurance, along with the facts that will help you make better decisions for your family’s financial security.
This myth assumes that life insurance is only for breadwinners with families, but nothing could be further from the truth. Everybody needs at least enough life insurance to pay personal debts and final expenses. If you are not insured, you could leave your family or executor dealing with unpaid expenses that can easily reach tens of thousands of dollars.
Think of the financial burden you might leave behind: student loans, credit card debt, car payments, funeral costs, and other personal obligations. Without life insurance, these debts don’t disappear, they become someone else’s problem.
Besides covering debts and final expenses, life insurance is a great way for even lower-income singles to leave a legacy to their alma mater, favorite charity, or endowment. Young, healthy individuals can secure substantial coverage at incredibly low rates, making this one of the most cost-effective ways to create a meaningful legacy.
This outdated rule of thumb has been obsolete for decades, yet financial advisors continue to perpetuate this myth. The time when life insurance coverage was based entirely upon your income has been history for a long time. Cash flow is a much more critical consideration, and cash flow becomes even more important when you are no longer there to help provide it.
Paying off your mortgage, covering medical expenses, funding your children’s future needs, and settling other liabilities and debts can quickly consume two years of your annual income. Imagine a family with a $300,000 mortgage, $50,000 in other debts, and children who will need $200,000 for college education. That’s $550,000 in expenses that have nothing to do with replacing income.
Life insurance is the most cost-effective way to prepare for future needs, both planned and unplanned possibilities. A proper needs analysis considers your family’s actual financial obligations, not arbitrary income multiples.
This myth is particularly dangerous because it assumes your insurance needs will disappear as you age. Term insurance is important but not cost-effective in your later years. Just because you might possibly have more equity in later years doesn’t mean that the wisest thing to do is drop your life insurance coverage.
Wealthy people understand that life insurance serves multiple purposes beyond just income replacement. It provides liquidity for estate taxes, equalizes inheritances among children, and protects against market downturns that could devastate retirement portfolios. Wealthy people think differently about insurance – they see it as a tool for wealth preservation and transfer, not just temporary protection.
Term insurance premiums can increase dramatically as you age. A 65-year-old might pay 20 times more for term coverage than they did at age 35. Meanwhile, a properly structured whole life policy maintains level premiums for life while building guaranteed cash value.
Group life insurance through your employer seems convenient and affordable, but this myth can leave you financially vulnerable when you need coverage most. Cash flow is critical to consider, and group policies often fall short of providing adequate coverage.
More importantly, if you lose your job, retire, or switch employers, you may not be able to afford the premiums required to convert that group policy to an individual policy. Then you are faced with insurability issues and premium costs that are higher than you may be able to afford – or you may be completely uninsurable due to health changes.
Group policies typically provide only basic coverage amounts, often just one or two times your annual salary. This coverage is rarely sufficient to meet your family’s actual needs, and it disappears exactly when you might need it most – during periods of job transition or retirement.
This lie is a selling technique used by many who sell cheap term insurance and ignore the fact that over your entire lifetime, whole life insurance will typically be less costly than buying term and investing the difference. This myth assumes perfect investor behavior and market conditions that rarely exist in reality.
Too many people never accumulate that $1 million, and when they reach age 65, they rarely can afford to pay the ever-increasing cost of their term insurance. Studies show that less than 3% of term policies ever pay a death benefit because people either outlive the term or can’t afford the renewable premiums.
The “invest the difference” strategy also ignores the tax advantages of life insurance. While investment gains are subject to taxes, life insurance death benefits are generally tax-free, and cash value growth is tax-deferred. This tax treatment can make whole life insurance significantly more efficient than taxable investments.
This myth is harmful because it promotes products that shift risk from the insurance company to the policyholder. There are many different kinds of universal life insurance products, and each of them creates risks which you as the owner assume when you purchase them.
Universal life policies come with hidden fees, variable costs, and no guarantees about future performance. The insurance company can increase the cost of insurance, reduce credited interest rates, or change policy fees, all of which can cause your policy to fail unexpectedly.
Participating whole life insurance products, on the other hand, are guaranteed products that have risks associated with them, but these risks are assumed by the insurance company and replaced with guarantees backed up by the company’s performance. Guarantees are better than risks, and therefore universal life products can never be declared categorically better than whole life products.
This myth is not just wrong – it’s foolish! Everybody has a human life value that can never be replaced by any amount of money. At the same time, money can help ease the financial loss that will occur upon the death of someone who produced value in your life.
Think of the economic value of a stay-at-home parent: childcare, housekeeping, transportation, meal preparation, and family management. Replacing these services can cost $60,000-$100,000 annually or more. Children, grandchildren, parents, spouses, key employees, business partners, and people you have loaned money to all need to be insured to help replace at least some of the value they contribute to your life.
This myth prevents young people from taking advantage of the lowest possible premiums and the longest period for cash value accumulation. The truth is that life insurance is most affordable when you’re young and healthy. A 25-year-old can secure substantial whole life coverage for the cost of a monthly streaming service subscription.
Youth provides two major advantages: lower premiums and more time for compound growth. A whole life policy purchased at age 25 will accumulate significantly more cash value over a lifetime than the same policy purchased at age 35, even though the older applicant pays only slightly higher premiums.
This myth keeps people from understanding one of the most powerful features of permanent life insurance. Properly structured whole life insurance policies allow you to access your cash value through policy loans, often within the first year of the policy.
These policy loans don’t require credit checks, have no restrictions on use, and don’t affect your credit score. You’re essentially borrowing your own money, and you can repay the loan on your own schedule or not at all. This liquidity feature makes whole life insurance a powerful financial tool for opportunities, emergencies, or planned purchases.
This myth ignores the stability record of the life insurance industry. Life insurance companies are among the most regulated and financially stable institutions in America. During the Great Depression, only 20 of 350 life insurance companies went into receivership, and virtually all policyholder claims were honored. Meanwhile, more than 4,000 banks failed during the same period.
Modern life insurance companies must meet strict capital requirements, undergo regular examinations, and maintain reserves to pay claims. They’re also backed by state guaranty funds that protect policyholders even in the unlikely event of company failure.
This myth compares apples to oranges by looking only at the illustrated dividend rate without considering the total benefits package. Whole life insurance provides guaranteed growth, tax advantages, death benefit protection, and liquidity – all with zero market risk.
When you factor in the tax-free death benefit, tax-deferred growth, tax-free loans, and guaranteed principal protection, the effective return often exceeds what most people achieve in volatile markets. Plus, you get peace of mind knowing your money won’t disappear in a market crash.
This myth promotes a commodity approach to a complex financial product. Life insurance isn’t a commodity – it’s a sophisticated financial tool that requires proper design and ongoing management. Online brokers typically offer limited product options and no ongoing service.
A qualified life insurance professional can structure your policy for maximum efficiency, help you understand your options, and provide ongoing support throughout the life of your policy. They can also help you avoid the pitfalls that trap do-it-yourself buyers.
This outdated thinking ignores the living benefits of permanent life insurance. Modern whole life policies serve as tax-advantaged savings accounts, emergency funds, retirement supplements, and wealth transfer vehicles – all while providing death benefit protection.
The cash value in a whole life policy grows tax-deferred and can be accessed tax-free through policy loans. This creates opportunities for tax-efficient wealth building that other financial products simply cannot match.
This newer myth promotes products that appear to offer the best of both worlds but actually provide neither guarantees nor true market participation. Indexed universal life policies use complex formulas, caps, and participation rates that limit upside potential while maintaining downside risk.
These policies often include hidden fees, surrender charges, and the possibility of premium increases. The illustrations used to sell these products frequently show unrealistic projections that rarely materialize in real life.
This final myth attempts to discredit the entire industry based on compensation structure. The truth is that commission-based compensation aligns the agent’s interests with yours – they only get paid when you get the coverage you need.
Moreover, the commissions paid on whole life insurance are often lower than the ongoing fees charged by investment advisors. A financial advisor managing the same amount of money might earn $177,731 in fees over thirty years, while a life insurance agent might earn only $9,720 in commissions on a comparable whole life policy.
These myths persist because they serve the interests of those who profit from keeping you confused about life insurance. Investment companies want your money in volatile markets where they can charge ongoing fees. Banks want your deposits so they can lend your money to others at higher rates. Government programs want you dependent on their systems.
The truth is that properly structured whole life insurance provides guarantees, tax advantages, and flexibility that no other financial product can match. It has helped families build and preserve wealth for over 150 years, through wars, depressions, recessions, and every market crisis.
If you love life and wish to create value, then life insurance isn’t an option – it’s a necessity, not just on your life but on the lives of those in whom you have an insurable interest. Don’t get caught up in the spin of misinformation that abounds regarding life insurance. The myths are designed to keep you from accessing one of the most powerful wealth-building tools available to American families.
The question isn’t whether you can afford life insurance, it’s whether you can afford to live without it. Your family’s financial security may depend on your willingness to see through these myths and embrace the truth about life insurance.
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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