Understand life insurance


Life insurance is meant to help your survivors cover their costs in the event of your death. If you have dependents, or if you’re planning on starting a family, it’s probably a good idea to purchase a life insurance policy so that your loved ones are taken care of financially after your death.

When you buy life insurance, though, it’s important to be careful. There are a number of misunderstandings about life insurance. Not understanding how this insurance works could cost your family dear.

We have identified five commonly held myths about life insurance.

Only breadwinners need life insurance cover

This is one of the biggest life insurance myths. The assumption is that the breadwinner brings in the money, and so he or she is the only person that needs to be covered by a life insurance policy. This takes no account of the breadwinner being left to look after the children. It also is short term as over time there is rarely only one person earning all of the family income.

Life insurance is about more than just replacing income. Consider this: A homemaker takes care of children and often does the cleaning and cooking. If a homemaker passes away, someone is going to have to do those things, and in many cases this means that the breadwinner will have to pay for childcare, and may even need to hire someone to do some of the cooking and cleaning. It is a good idea to consider these costs as you determine life insurance coverage for a stay at home partner.

Life Insurance from my employer is enough

Many people believe that the life insurance policy (usually term life) provided by an employer is sufficient. However, this is not always the case. Indeed, if you are just starting out with a young family, the term life coverage you get through your employer may not be enough as it is usually based on a multiple of salary. Carefully consider the likely future needs of your family. Then, double check your life insurance benefits. You may decide to purchase additional life insurance. Sometimes all you need to do is buy an additional term policy that will give cover until your youngest child is of age.

You should also make sure you understand the rules of retaining the life insurance coverage in the event that you change employers. It is vital that you understand how your coverage works so that you are able to properly plan for possible eventualities.

All Life Insurance policies are the same

One of the biggest mistakes that you can make is to assume that all life insurance policies are the same, except for differences in the death benefit paid out (and whether the policy is a term or whole life policy).

We regularly warn you not to buy any type of insurance based on its title, as policies differ.

Indeed, the life insurance policy represents a contract between you and the insurance company. Coverage rules may vary from policy to policy. This means that you need to check your policy documents. Know what needs to be done to maintain coverage, as well as which types of deaths are covered. For example, most insurance policies are very particular about how suicide is treated when it comes to the benefit payout. You want to make sure that you aren’t doing anything to jeopardize your family’s ability to receive the death benefit.

A development in this insurance is that some policies will pay out before death, if you are suffering from a critical medical problem. It is depressing to weigh up these factors, but such a policy may make the difference at a difficult time.

Life insurance is more important than disability coverage

Many believe it is of vital importance to have life insurance – and they are right. However, many people believe that life insurance is always more important than disability coverage. You have to weigh up what you can afford to pay, and what is most important to you. One policy covers death and the other covers the inability to work.  Many people overlook disability coverage in their haste to purchase life insurance. As a result, they are not prepared when something happens to limit their ability to earn an income. We are not equipped to weigh up these issues ourselves so good financial advice is necessary.

Poor health means I cannot get life insurance

Some people in poor health mistakenly believe that they can’t get life insurance. Those with diabetes or some other chronic condition worry that they will be considered ineligible for life insurance. The good news is that this isn’t always the case. Many people with health problems can purchase life insurance coverage. However, poor health does come with a cost for life insurance. Premiums paid by those with poor health are likely to be higher than those paid by someone in good health.

Life insurance companies are about assessing risk. If you are in poor health, or if you have a chronic condition, you represent a higher risk of dying before the life insurance company (which is, after all, a business) has a chance to collect enough premiums to offset paying the death benefit. In order to help limit some of that risk you will have to pay higher premiums. But life insurance is too important to neglect for this reason. You can get your insurance from a company that specializes in these types of policies, and pay a little bit more, but your life can still be insured.


Don’t rely on assumptions about life insurance. Do your research, and look for good information. You’ll be able to make better decisions about what life insurance policy is best for protecting your family.