The 7 Biggest Lies You’ll Hear About Life Insurance


Understanding Life Insurance Part 3

  1. You don’t have any dependents so you don’t need life insurance
    1. 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. Besides, life insurance is a great way for even lower income singles to leave a legacy to their alma mater, favorite charity or endowment.
  2. All the insurance you need is twice your annual income
    1. The time where 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 critical when you are no longer there to help provide it. Paying off your mortgage, medical expenses, future needs of your children, and other liability and debts can quickly consume two years of your annual income. Life insurance is simply the most cost effective way to prepare for future needs, both planned and unplanned possibilities.
  3. Term insurance is all you’ll ever need
    1. 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 think both. Think like the wealthy.
  4. Your group life insurance policy is all you’ll ever need
    1. Again cash flow is critical to consider. If you lose your job, retire or switch jobs, 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.
  5. Buy term and invest the difference, until you have liquid assets of at least $1 million
      1. This lie is a selling technique used by many who sell cheap term insurance and ignore the fact that over your entire life time Whole life insurance will typically be less costly to you than buying term and investing the difference.
      2. 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.

    (Also See: The “Dave Ramsey” Factor)

  6. Universal life products are always better for you to own than Participating Whole life
    1. 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. (See: Kinds of Life Insurance)
    2. Participating Whole life insurance products are guaranteed products which also have risks associate with them, but these risks are assumed by the insurance company and replaced with guarantees backed up by the company’s performance. (See: What Is Participating Whole Life Insurance?)
    3. Guarantees are better than risks and therefore Universal life products can never be declared better than Whole life products.
  7. If you are not the bread winner in your family you don’t need life insurance
    1. Foolishness! Everybody has a human life value which 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 that produced value in your life. Children, grandchildren, parents, spouses, key employees, business partners and people you have loaned money to, all need to be insured in order to help you replace at least some of the value which they are contributing to your life today, if they were lost.

So don’t get caught up in the spin of misinformation that abounds regarding life insurance. If you love life and wish to create value, then life insurance isn’t an option it is a necessity, not just on your life but on the life of those who you have insurable interest in as well. If you don’t love life and don’t care to create value, then life insurance is a waste of your money.

Part 1: Understanding Life Insurance
Part 2: What is Participating Whole Life Insurance


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