Three in 10 American households have no life insurance at all, and even those with life insurance coverage usually don’t have enough.
The reason? Besides the fact that most people don’t want to think or talk about needing life insurance in the first place, many simply don’t understand how much coverage they need — or the potentially devastating effects of inadequate coverage.
“Many misconceptions persist about life insurance, including who needs it and how much it costs,” says Steven Johnson, assistant vice president, product development, at Colonial Life. “Learning to spot some of the myths about life insurance can help consumers make better choices that will protect themselves and their families.”
Seven common life insurance myths
Myth #1: My employer pays for my life insurance so I don’t have to worry about it.
If your employer is paying for your life insurance coverage, it’s almost certainly a group policy that only covers you while you’re employed there. In fact, only 44 percent of adult Americans have individual life insurance.
Without individual life insurance, you could be vulnerable if you lose your job or have a break in employment. “Individual voluntary life insurance purchased at the workplace is a good solution for many employees,” explains Johnson. “Individual plans are portable, allowing policyholders to keep their coverage if they change jobs or retire.”
Myth #2: I already have enough life insurance.
A general rule of thumb is to purchase a life insurance policy worth seven to 10 times a person’s income. Yet today, most households only own enough life insurance, on average, to replace their income for 3.5 years.
I can’t afford life insurance.
Misunderstanding about cost is one of the biggest barriers to purchasing life insurance, according to LIMRA. Consumers estimated the cost of a life insurance policy to be more than double its actual cost in a 2012 survey.
“Many types of life insurance are available to meet different needs and budgets,” says Johnson. “Term life plans, which are generally less expensive than other types of permanent life insurance, can be purchased for just a few dollars a pay period. A little life insurance is better than none at all.”