“Life insurance is just another pointless expense.”
“It costs too much.”
“It's throwing money away – I won't ever benefit from it.”
These are some statements you might hear from life insurance sceptics. The thing is, in most cases they simply aren't true.
At YourWealth we set out to debunk the myths holding you back from making better decisions with your money.
So we're taking a look at the three biggest myths about this important – but often misunderstood – financial safety net.
Myth #1: I don't need life insurance just yet
Do you feel vulnerable?
In fact, if you're still reasonably young and healthy, it can be easy to feel invincible.
I'm sorry to have to say this, but none of us are.
Research has shown that we're pretty bad at estimating how long we're going to live.
We're also not great at estimating our vulnerability to health hazards. In a landmark study titled “Why it won't happen to me: perceptions of risk factors and susceptibility”, the psychologist Neil Weinstein found that respondents rated themselves significantly less likely than average to experience 25 health hazards, including certain types of cancer.
Even if you believe your risk to be smaller than average, the downside of that risk is enormous. If there are people depending on your contribution – whether or not you work full time – then being uninsured (or under-insured) could leave them facing a financial disaster. Unless you've got no dependents, mortgage or living expenses, your family probably does need you to have life insurance.
So here's how I'd sum up the reality that counters this myth:
- It's likely you're underestimating your risk
- The downside to that risk is potentially huge
- If the risk exists today, it's worth insuring today – it won't be noticeably bigger tomorrow
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Myth #2: I can't afford life insurance
A lot of people who use our life insurance quote tool start by entering a tiny amount of cover – for example, £10,000. Yet for most applicants it doesn't cost much more to have £100,000 of cover. This illustrates our second myth: that life insurance is going to be expensive.
The good news is that it doesn't have to be. In fact, it's cheaper to get cover when you're still young and healthy – because your life expectancy is longer. Your 30s and 40s are when your financial responsibilities could peak, but it is still a highly affordable time to arrange cover.
£100,000 of cover for a 32 year old non-smoker, decreasing in line with a mortgage over 20 years, could cost as little as £5.71 per month:
A 45 year old non-smoker wanting £80,000 of level term cover over the 22 years to State Pension Age (67) would pay from just £13.10 per month:
Adding in critical illness cover need not be expensive either. This quote is for a 35-year-old non-smoker wanting to provide £250,000 in the event of death, and £50,000 in the event of critical illness, over the next 30 years (up to age 65):
Another variant of this myth is when people believe that they won't get the price quoted.
Actually, the vast majority do. On average, around 3 in 4 customers who apply for a level term assurance policy processed by life insurance specialists theidol.com get the premium price first quoted. For the minority, some will be informed of a 'rating', meaning you'd pay a higher premium than first indicated based on additional risk factors, and a small percentage would be declined.
So it's worth getting a quote as you are more likely than not to find that the premium first quoted will be the price you pay.
Myth #3: You won't benefit from it
Along with making a will, it can be easy to put off sorting out life insurance because "it won't matter until after I'm gone". It's the ultimate procrastination – and it's also a big fat myth.
As well as the obvious benefit to your loved ones if you die unexpectedly, there are circumstances when you can effectively claim your payout while you're still alive.
If you add critical illness insurance onto your policy, you can claim a payout if you're diagnosed with an illness like cancer, or suffer from conditions such as a heart attack or stroke.
The truth is, you're far more likely to need life insurance while you're still alive than when you're not. According to leading life insurer AIG, male policyholders are 1.8 times as likely to make a critical illness claim compared to death claim. Female policyholders are 2.3 times as likely.
Adding critical illness cover is easy to do, and costs less than you might think. The 32 year old non-smoker in the first example could add critical illness cover for just £1.92 per month:
Myths sufficiently busted? Then there's no time like the present.
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