5 of the greatest myths about life insurance everyone should know.
Myth #1. Life insurance rates are negotiable.
Most life insurance companies have set actuarial table rates that are not negotiable. These actuarial tables are set and not changed arbitrarily. Purchasing and qualifying for life insurance is not like purchasing a vehicle. The issuing company has already calculated the risk involved based on the applicant’s current age, health condition, and health history.
Myth #2. Smoking or additional health problems automatically disqualifies you from obtaining life insurance.
Most insurance companies have set rates for both tobacco-users and non-tobacco users. If additional smoking related health issues exist, such as COPD or emphysema, this may disqualify you from obtaining life insurance. Generally, smoking alone does not disqualify you from obtaining life insurance. Generally, if you smoke or use tobacco, you will simply pay a higher rate than a non-smoker or non-tobacco user.
Myth #3. Having life insurance at work is all I need.
Having life insurance at work is good. A good benefits package at work may include 2-5 times your salary or current pay scale. However, when you change jobs or retire, most employers will significantly reduce your life insurance if not totally eliminate your coverage.
It’s always good practice to have a private insurance policy outside of your job. This policy should have nothing at all related to your employer. If your employment situation should change, this private policy will not be affected and will remain in force.
Myth #4. I have a 401(k) so I don’t need life insurance.
Once again, having an employer provided 401(k) retirement benefit is a good thing. I highly recommend contributing to this plan up to the amount that the employer matches your contribution. The government loves 401(k) plans.
However, on the other side of the spectrum, is when the disbursements from this 401(k) begin. Why is that important? Here’s why. All contributions the employee make to the contribution are pre-tax. Usually, this contribution comes right out of the employee’s paycheck before any taxes are paid on the income. So, when the employee elects to receive the disbursements after retirement, significant taxes are paid on the proceeds.
How, does this tax consequence differ from life insurance proceeds? All life insurance proceeds are non-taxable. The premiums for a private life insurance contract are generally paid for with after-tax income (direct deduction from insured bank account). Therefore all life insurance proceeds paid to the beneficiary are non-taxable.
Myth #5. I’m too young to need life insurance.
A large portion of the general public believe that they may not need life insurance. Particularly young people in their 20’s or 30’s. Especially if they are single. However, having a private life insurance policy not related to your employer is highly recommended. Being a responsible person is the first step toward being a responsible adult. No one is happy when they have to fund an uninsured relatives final expenses.
For your free in-home life insurance consult in the state of Virginia, please call Chris @ 804-201-3866/
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