Demystifying life insurance myths

Mark Cussen unravels 10 life insurance myths on Investopedia.com.

1. “I’m single and don’t have any dependents, therefore I don’t need any coverage.” Everyone should have enough life insurance to cover personal debts, and medical and funeral bills.
2. “I only need an amount of life insurance coverage equal to twice the amount of my annual salary.” Cussen writes rather cheekily, you only need an amount equal to what’s actually required. To find that amount you may need to do a cash flow analysis.
3. “My term life insurance coverage at work is sufficient.” This may be true depending on your client’s situation. Clients with dependents or debts may need additional insurance.
4. “At least the cost of my premiums will be deductible.” Not so, Cussen writes. “The cost of personal life insurance is never deductible unless the policyholder is self-employed and the coverage is used to insure the business.”
5. “I absolutely MUST have life insurance at any cost.” If your clients have no dependents, and have zero debt with sizable assets, they may be able to get away with no life insurance.
6. “I should ALWAYS buy term and invest the difference.” Term coverage can be much more expensive for older clients. Those with estate tax issues to contend with may choose permanent coverage and avoid the risk.
7. “Variable universal life policies are always superior to straight universal life policies over the long run because of their long-term growth potential.” Variable universal life policies contain several layers of fees; if the subaccoutns don’t perform well, your clients may see a lower cash value than what they would get from a straight policy.
8. “Only breadwinners need life insurance coverage.” Simply put, “The cost of replacing the services formerly provided by a deceased homemaker can be higher than you think,” Cussen writes.
9. “I should always purchase the return-of-premium (ROP) rider on any term policy.” A cash flow analysis will help determine if this rider is cost-effective.
10. “I’m better off investing my money than buying life insurance of any kind.” After the last few months of this market, you may encounter few people who still believe that. “Until you reach the breakeven point of asset accumulation, you need life coverage of some sort,” Cussen writes.