Owing to its myriad rules and technicalities, life insurance can be difficult to understand. For this reason, the decision to buy a life insurance plan in Texas is usually met with confusion, hesitation, and denial. Well, it is not at all easy to think about one’s death or what would happen to your family if you were not around to take care of them. Therefore, when it is about safeguarding your loved ones with life insurance, it is crucial to separate facts from misconceptions.
Here we have examined 10 most common misconceptions around life insurance to smooth out your journey to getting the right individual insurance plan.
Myth 1: You don’t need life coverage since you have no dependents
Even single person may require life insurance in order to cover medical bills, personal debts, or funeral costs. If a person is uninsured, they might leave a burden of outstanding expenses for their executor or surviving family members to deal with. Moreover, having a life insurance plan is an excellent way for low-income individuals to fiscally support their preferred charitable organization or other similar cause, in their absence.
Myth 2: Life insurance coverage should only be double of your yearly income
The amount of life insurance a person needs, depends on their individually specific situation. There are several factors to be considered. Apart from funeral costs and medical bills, you may require paying off debts, like mortgage loans and safeguarding your family financially for a couple of years after you are gone. A cash flow analysis is therefore crucial to figure out the actual amount of coverage you need with your life insurance plan. Gone are the days when calculating life insurance coverage was based solely on a person’s earning potential.
Myth 3: Employer-sponsored term life coverage is enough.
This may be or may not be the case. For single people with a moderate income, employer-sponsored term insurance coverage may be sufficient. However, if you have dependents like a spouse, or you are aware of the fact that you would require money for estate taxes after your death, extra coverage may be required.
Myth 4: The money for life insurance premiums will be deductible
In most cases, this is not true. The cost of personal life insurance premium for a policyholder will never be deductible unless that person is self-employed and the life insurance coverage is used by the business owner for asset protection. In such a case, the premiums can be deductible under Form 1040’s Schedule C.
Myth 5: Buying a life insurance plan in Texas is a must, no matter what!
While this can be true in many cases, individuals with massive assets as well as no dependents or outstanding debts may not require buying a life insurance policy. If you have medical and funeral costs covered, life insurance coverage may be optional for you.
Myth 6: One should only purchase a term plan and invest the difference
This is not true in every case. There are unique differences between permanent life insurance and term life insurance. Plus, the cost of having term life insurance coverage increases as your age advances. Therefore, people who need to stay covered until their death, must consider permanent life insurance. The total amount paid in premiums for a pricier permanent life insurance may be lower than the total premiums paid for a less expensive term policy – and the former will most likely last longer than the latter.
With a term plan, you run the risk of non-insurability, which may prove detrimental to people with estate taxes and they may need a life insurance plan San Antonio, Texas to pay them. This risk can be averted with permanent life coverage, which becomes payable once you pay a specific amount in premiums, and the policy will also remain active until your death.
Myth 7: Variable universal life insurance is better than straight universal life insurance in the long run
Many universal life plans offer attractive interest rates. Variable universal life plans comprises dual fee layers, pertaining to the insurance component and the securities component of the policy. That means, if the variable portion of the policy does not perform well, the variable life insurance policy would see a lower cash value vs. a person with a straight universal life plan.
Moreover, poor performance of the variable component may even result in considerable cash calls in variable universal life plans that could require the policyholder to pay extra premiums to keep their policy active.
Myth 8: Only a breadwinner requires life insurance coverage
This makes no sense. The cost of getting the services earlier provided by a homemaker, who is no more now, can be higher than your expectation. Hence, it make sense to insure a homemaker, particularly if you consider the costs of daycare and cleaning.
Myth 9: One should always buy the return-of-premium (ROP) rider on a term plan
In general, there are varied levels of return-of-premium (ROP) riders available on plans that come with this feature. Many financial experts suggest that such a rider is not beneficial and should not be bought. Whether or not to include it in your life insurance policy depends on your risk appetite and other potential investment-related goals.
A cash flow analysis will tell you whether you should invest the extra amount somewhere else, or you should buy an ROP rider to be included in your life insurance policy.
Myth 10: Investing Money is better than Purchasing Life Insurance
This is baseless. Until you achieve the breakeven point of building assets, you require a life insurance plan in Texas of some type (apart from the exception in Myth #5). If you accumulate $1 million in liquid assets, you are in a position to decide whether or not to discontinue (or at the least decrease the coverage) your life policy with million-dollar coverage.
Also, your stakes are high when you rely wholly on your investments during the early phase of your life, particularly if you have dependents. If you die without leaving enough coverage for them, there may be nothing to support them financially once your current assets exhaust.
The only question you need to ask yourself when thinking about life insurance
Do I have the assets to cover my dependents’ expenses after my unexpected death? If you don’t have enough wealth, buying a life insurance plan is your way forward.
People who may not need life insurance coverage?
If you have your funeral costs and medical bills covered, life insurance coverage can be an option to you. People having considerable assets with no dependents to support or debt to pay can consider self-insuring.
Final Words
Discussed above are some of the most common myths related to life insurance plan in Texas. The only condition to exclude life insurance from your monthly or annual budget is when you know that you have substantial assets to cover all your debts, bills, and other expenses after your demise. If you are still confused, consult with a licensed local life insurance agent in San Antonio, Texas, will help you choose the right coverage, based on your specific situation.