I’ve recently seen, or heard, commercials saying how easy it is to get life insurance. Sadly, they can be a little deceptive.
Deception # 1 – “There’s no physical”
While that is true for “Final Expense” policies with a benefit of less than $100.000, since the mid 1980s most insurance companies require a test for the HIV virus for all policies that have a benefit of $100,000 or more.
The good news is that, in most cases, that test can be administered by a nurse at the same time as a paramedical exam is completed and that the insurance company will pay for that exam if one is required.
The bottom line is that if the reason for the life insurance is to pay for funeral and final expenses, a physical may not be required. However, if the purpose of the life insurance is to pay off a mortgage or replace a lost income if the something happens to the insured, it is likely that the insurance company is going to investigate the applicants current health.
Deception # 2 “Everybody needs life insurance.”
While it is true that many people need life insurance, it is not true that everybody needs life insurance, or that everybody needs life insurance for their entire life.
What is more important is that people have the life insurance that is appropriate for them.
For example, it is my belief that single young adults, if they even need life insurance, only need enough to pay off their funerals, credit cards and loans they might have. In my opinion, an appropriate disability insurance policy is more important, for them than life insurance is.
Conversely, a young adult, mother or father, with dependent children, probably needs enough life insurance to replace their lost income if they die prematurely.
Another time to consider the need for life insurance is at retirement. If things worked out the way the financial gurus of the late 20th century, an individual has a sufficient retirement fund so that they do not need life insurance to pay for their funeral expenses.
However, during retirement there is a more dangerous financial threat to retirement savings. If one spouse becomes ill and needs a nursing home, a retirement savings plan can be emptied mighty quickly.
Even if an individual does not become ill enough to need a nursing home, the cost to hire professional help with someone who is healthy enough to remain at home, provided they have help, can unexpectedly drain retirement savings.
In that case, an individual would be better off with a long term care type of insurance policy than a simple life insurance plan.
To be honest, there are some life insurance plans that include long term care coverage at the same time, but that is an exception and not a rule. If you are retired, my advice would be to blow the dust off of your life insurance policy to verify that it meets your needs.
If it does, you do not need to do anything. However, if it falls short of your goals, you may already be spending most of what it costs to insure all of your risks.
Deception #3 – “All life insurance plans are the same”
In one way of thinking that is a correct way to look at it. They all require an insured to pay money to an insurance company in exchange for a promise to pay cash at a future date and under specific circumstances.
However, that is where the similarity stops. There are 3 different types of life insurance;
- Term Life
- Whole Life
- Universal Life
Each of these types of life insurance works differently.
In many cases, the deck is stacked so that life insurance is often a way to legally separate an individual from their money. Make certain you understand what kind of life insurance you have and how it works.
The truth is that life insurance is a fantastic financial tool for those who pay attention and understand what they got and why they got it. However, it can be a “less than wise” purchase for someone who is easily deceived by slick marketing tactics.