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8 Life Insurance Myths Debunked

Updated: December 2019

The decision to buy life insurance is often met with hesitation, confusion or even denial. After all, it's not an easy subject to think about: What would happen if you were to pass away? When it comes to protecting your loved ones with life insurance, it's important to separate fact from fiction.

To get started, read on to learn the truth about eight life insurance myths. It may change your perspective and help you make informed decisions about purchasing life insurance

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Myth 1: I'm single, or married with no children, so I don't need life insurance.

Even if you don't have a spouse or dependents, life insurance benefits can be used to help your loved ones pay off your debts (like private college loans, for instance) if you pass away. Consider debt such as your mortgage or your car loan. Planning early can help protect your loved ones from burdensome expenses.

Myth 2: I can't afford life insurance.

Many consumers overestimate the cost of a term life insurance policy, according to Life Happens. Life insurance can be affordable for many people, depending on the type and amount of coverage you're looking for. You can start with a policy that fits your budget, and you may be able to purchase additional coverage later on.

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Myth 3: I'm a stay-at-home parent. I draw no income. I don't need life insurance.

If you're a stay-at-home parent, life insurance is still important. While you may not bring in an actual paycheck for the household, you likely provide services that could cost tens of thousands of dollars to replace each year. These may include child care, daily transportation, home maintenance and cooking, to name a few. If you were to pass away, life insurance benefits may help cover some of these costs.

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Myth 4: I have a life insurance policy through my job. If I take another job or get laid off, I can take the policy with me.

Typically, your employer-offered life insurance policy isn't portable — meaning if you leave your job, you're probably also leaving your life insurance protection behind. However, when you buy your own, separate life insurance policy you decide how long you want to be covered. Additionally, with an individual policy, you may be able to get more personalized coverage that fits your financial needs.

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Myth 5: My beneficiaries will have to pay income taxes on the proceeds from my life insurance policy.

Your life insurance benefits are generally income-tax free and do not have to be reported on your tax return, according to the Internal Revenue Service (IRS). That means if you pass away, your beneficiaries would not be taxed on the benefit paid out from your policy. However, any interest payments on top of the policy amount may be taxed.

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Myth 6: If I get term life insurance, I can't convert it to a permanent or whole life insurance policy.

It is possible to convert some term life insurance policies into a permanent life insurance policy, depending on the policy you purchased. However, it's a good idea to speak with your agent up front, as convertible term policies typically must be converted within a specified time period. You also may encounter additional requirements with a convertible term policy, such as increasing premiums.

Myth 7: I don't need life insurance once my children are adults.

Life insurance can help you in many different stages in your life. Having life insurance later in life has a number of advantages, such as helping to relieve the burden of paying for final costs, paying for state estate taxes your heirs may face, paying off debt you may have left behind, or simply leaving your children with an inheritance.

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Myth 8: I have a comfortable amount of savings, so I don't need life insurance.

While your savings may last through your retirement, have you thought about final expenses? According to the National Funeral Directors Association, the national median cost of a funeral with a burial is about $7,300. If you don't have enough money saved when you pass away, your loved ones may have to pay for your funeral costs.

Another thing to keep in mind is your mortgage. If you don't have enough in savings and your mortgage has not been paid off, your loved ones also may not be able to hold onto your home. A life insurance policy's death benefit can help alleviate some of this burden after you pass away.

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No matter where you are in life, it makes sense to help protect your loved ones and your assets with life insurance. If you have any questions, reach out to your local agent.

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This content is for informational purposes only and may not be applicable to all situations.

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