Contents

• Myths About The Costs of Life Insurance
• Life Insurance Myths About You and Your Family
• Myths About Life Insurance Coverage
• Myths About Life Insurance Policies
• Myths About Life Insurance Companies

Everyone has an opinion on how you could be managing your life better, and while it is important to listen to the advice and experience of others, all of this chatter can culminate into certain perceptions that aren’t always wholly true, or true for your situation. One instance where you need to take special care to find out the truth and reality for your situation is when considering life insurance.

On the surface life insurance is just another bill to squeeze into the budget somehow. As a result, many myths are circulated to help people justify not taking out life insurance, not taking out enough insurance, and not looking closely enough at how their insurance meets their needs. That is why we have covered the five areas you will be looking at as you compare life insurance, and explained all of the myths, so you have only the facts.

Myths About The Costs of Life Insurance

1. The premiums are deductible. In most cases life insurance premiums are not deductible unless you are self employed and the coverage is insuring the business’ operations.
2. You must have life insurance at any cost. Life insurance is important in almost all situations, but before you invest in insurance you should be looking carefully at your situation and your finances, for example if you don’t have any debts or any dependents you may be financially better off putting away some savings in an emergency fund as insurance.
3. It’s too expensive. The cost of life insurance for the average person is usually less than they are paying for their car insurance. Plus, when you make careful comparisons of life insurance policies you can make sure you’re not paying for unnecessary extras.
4. You’re unlikely to make a claim, so it is unnecessary. No one is denying that it is unlikely you will die during your working years – that is after all why insurance is more expensive when you are younger. However, you are not taking out life insurance for what is likely to happen because you can usually prepare for the expected, it is the unexpected you need to be protected against.
5. The most expensive policy is the best. In many cases the cheaper term life insurance policy is usually the best choice as you’re not paying for any investment add ons and you’ll have coverage for as long as you continue to pay your premium. With term life insurance you can be covered for the period of time that your death will have the most impact financially – while the children are still at home and the home loan is large – and you don’t need it once your home is paid off and your liabilities decrease.
6. You can’t afford it. Many people will assume they can’t afford life insurance before ever actually knowing how much it will cost. Therefore, before you dismiss life insurance as a luxury you can’t afford, find out how much coverage for your situation will be and you’ll probably find there is room in your budget after all.
7. It’s not necessary. Your car and your home and contents are probably insured so why is it more important to insure your possessions – which can easily be replaced – than it is to insure your life? If you still think life insurance is unnecessary, take a second to think about how your family would keep up with the household finances and ongoing living costs without you there to bring in an income.

Life Insurance Myths About You and Your Family

1. You don’t have dependents so you don’t need coverage. Even if you are single and don’t have any children you still need enough life insurance to cover the costs of your personal debts, medical costs and funeral bills.
2. You’re not the primary income earner. This doesn’t mean your loss wouldn’t leave a financial hole in your family because even if the stay at home parent were to die, your family would need to invest in childcare and home maintenance services, and your partner may have to cut back their hours to take care of the family.
3. Everyone needs life insurance. As important and valuable as life insurance is, not everyone should automatically take out insurance. In some cases if you don’t have any debts, a partner or any children, or if you and your partner earn enough to be self sufficient, your money may be better spent in an emergency fund or an investment. Or if you are retired, you may not need life insurance if you and your partner have been able to live comfortably on your retirement income, then if one of your dies, the other should be able to continue on that income.
4. Government benefits will look after your family. Federal Government laws do not in fact protect your family in the event of your death. The government is not required to provide financial support to families who have lost a parent or income earner, nor is the government required to pay a replacement income to workers who have to stop working in case of an injury or illness not covered by Workcover.
5. Only one person in a couple needs life insurance. If both partners earn an income and are contributing to bills such as the mortgage and other living expenses, then if either one of them dies or is unable to work, you’ll need insurance to cover that loss, even if it is only partial. Or if one partner works and the other doesn’t, both still need to be insured because if the stay at home parent were to die their role still needs to be carried out.

Myths About Life Insurance Coverage

1. Life insurance coverage should be twice your annual salary. A life insurance benefit of twice your annual salary would be lucky to provide for your family for two years. Instead, calculate the amount of life insurance you need by looking at the cost to pay out your mortgage and other debts, and make sure the benefit is enough to financially provide for your family for many years to come, for all of their ongoing and growing needs.
2. You always need a return of premium rider on term life insurance. A ROP rider will return the premiums you’ve paid if you survive the term of the insurance. While this sounds like a win-win situation a ROP rider comes at an extra cost so you need to look at whether you can afford that extra cost now to maintain your policy, and whether it is worth the additional expense now, to possibly receive a pay out later.
3. Income protection benefit periods are too short to be of any value. The benefit period of a policy is your choice, and you can have your benefits paid for as long as you feel comfortable it will take you to get back on your feet. Also remember that an income protection policy with a 5 year benefit period for example, doesn’t mean the policy will expire in 5 years, it means the benefit will be paid for 5 years after you make a claim – you can actually often keep the policy until retirement age in most cases.
4. Group insurance through your employer is enough coverage. Group insurance allows your employer to sweeten your workplace agreement with a life insurance inclusion, and they receive a discount on the insurance premiums they are paying, because of the bulk policy, and no medical or individual information is assessed. However, you shouldn’t assume that the insurance your employer has taken out on your behalf is enough for your family, or meets all of your needs and should make sure you understand the group insurance policy you are part of, and back up that insurance with another policy is necessary – after all, what does the fine print say happens if you change jobs?

Myths About Life Insurance Policies

1. You should buy cheaper term life insurance and invest the difference. Term life insurance is typically cheaper, but can be an expensive option as you get older. As you move through a term life insurance policy you could also risk being uninsured when you do die, or your risk being uninsurable when the term of your policy expires.
2. Variable universal life insurance policies are a good investment. A universal life insurance can pay you competitive interest on your premiums and with a variable interest rate you are able to take advantage of movements in official interest rates. However, variable universal policies also often come with a range of fees which relate to the securities and insurance elements of the policy, so if your policy subaccounts do not perform well you could actually see a lower cash value, compared to a straight universal policy.
3. Superannuation life insurance is enough. Not all superannuation will automatically include a life insurance component, nor should you assume that the amount of life insurance coverage you do have through superannuation is enough for your family and your individual needs.

Myths About Life Insurance Companies

1. Life insurance companies don’t pay out on claims. The big bad insurance company is a common villain in popular culture, but the real life insurance companies know that their reputation and their future success depends on them honouring the claims of their customers. Therefore, if you were honest when applying for your insurance and you are making a genuine claim, insurers will aim to pay the benefit from your policy as quickly as possible.
2. Life insurance is too confusing. Yes, there are a lot of choices out there when it comes to life insurance, but if you are clear about what you and your family need, then you can quickly narrow down the options to a few policies which suit your needs. You can then look at the specific inclusions and conditions of each policy, research the insurer and rest assured that you are covered. Insuring your life is not like insuring your car or house, so expect the process to be a little more complicated. However, once you take the time to understand all of the variables of particular polices, you will be able to match them to the variables of your own life.
3. Getting life insurance is a hassle. When you had to make appointments with numerous insurers and travel all over town to get quotes, then yes, getting insurance was a bit time consuming, however, with access to the internet, comparison of insurers and insurance policies is fast and easy. You can research an insurer to check up on their reputation and you can compare policies, inclusions and extras side by side, in the comfort of your own home, whenever you have the time. Plus, if you do have a question or you need more information, most insurers will have a help line you can ring which is usually staffed late into the night and on weekends.
4. If you’re denied by one insurer you’ll be denied by them all. While it is true that one insurance company can access an assessment of you done by another insurance company, independent insurers will often come to different conclusions about your insurability. For example, some insurers specialise is certain pre existing conditions, while others set out to specifically insure the self employed. Plus, each insurance company will use a different underwriter, so something one insurer considers a risk, may not even register on the radar of another.
5. You must have a medical exam to apply for life insurance. If you don’t have the time or your simply don’t want to be prodded and poked, it is possible to avoid a medical exam when applying for life insurance. As long as you are honest in your application, you can be approved for inclusive cover without a blood test or doctor’s visit. Keep in mind that you may have to pay slightly higher premiums for an insurance policy which isn’t asking for a medical test, and that even if you do not have to submit to an examination initially, the insurance underwriter may want to verify some of your answers to the life insurance application with a medical test.