19 June 2014 0 Comments

Misconceptions About Life Insurance (Part 2)

shutterstock_59964004 (1)This continues with my last entry dealing with the most common misconceptions about life insurance.

In a family setting only the breadwinner needs life insurance.

If there are no minor children or special needs children to care for, then it is probably not necessary to have life insurance on the non-income producing spouse.  But if that spouse is providing care for the children, then there is an economic need to provide funds in the event of that spouse’s death to cover the myriad of services that would require a substantial monthly outlay.  Term life insurance on the non-working spouse during those family years is inexpensive and essential.

Short of welfare, there are no government programs that will provide for you kids if you die.

Actually, if you are covered by Social Security there is a substantial survivor’s income benefit payable to minor children and to the surviving spouse who is providing care for minor children.  The only lump sum death benefit from Social Security is $250, but this survivor’s benefit can easily exceed $1500 per month.  Enter “Social Security” on the Search tab and you’ll learn much more about this important benefit.  Remember, though, the greater your income, the smaller the survivor’s benefit is as a percentage of you current compensation.  Life insurance is still needed.

I won’t need life insurance after I retire.

If the primary purpose of life insurance is to replace future income, then this statement may be true.  However, there are at least two caveats to this statement:  Do you really know when you will retire and future income will no longer be important?—and—Will you possibly be better off taking an increased pension income that stops at your death and providing life insurance for your spouse that replaces the pension income lost when you die.  Check out “Pension Maximization” on my Search engine for more information on this subject.

Term Insurance is always the right policy to buy.

This misconception reminds me of a rule someone once told me about picking the correct answer on a multiple choice quiz:  If the answer contains the words “Never” or “Always” that will not be the right answer.  So, although I like term insurance very much for providing family security, there is a time when permanent life insurance might be important.  Enter “Age 55” on my search engine for more information on this subject.

Next…I’ll continue on life insurance misconceptions with the thought that buying term insurance is just putting your money down a rat hole.

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