Insurance is one of those budget items that you hate to pay, but you’re really happy to have it if you need to make a claim. There are, however, popular misconceptions that many people believe that will, unfortunately, cause them to be underinsured or improperly insured. Do you believe these common insurance myths?
Myth #1: Insurance is expensive
Most people are underinsured, even across all income levels. The average consumer thinks life insurance costs more than it actually does and that it is a needless expense, especially if they are young.
Costs are based on life expectancy – and life expectancy is constantly increasing – so, the younger you are, the less it will cost.
Myth #2: Employer-provided life insurance is all you need
Group insurance through your employer certainly has significant benefits – ease of purchase and lower administrative costs per policy, for example, but it may not be enough for your purposes.
Your employer may provide you with life insurance equal to one or two times your salary. This may be sufficient if you’re single and it’s enough to cover personal debts and funeral bills. Others will need to replace their income for their dependents. Experts generally recommend at least 5 – 8 times your income and some even go as high as 10 – 12 times.
Even if you are able to purchase an additional amount, you may lose it when you leave your job, or if you can convert it to an individual policy, it may be much more expensive.
Myth #3: A “house spouse” doesn’t need life insurance
Many people assume that only the breadwinner needs life insurance.
But, “house spouses”, especially those with young children at home, are providing a very valuable service.
Notwithstanding all those articles that place an economic cost on the value of a homemaker’s tasks (some go up to $500,000 per year), hiring someone to take care of the house and kids would be costly.
Mike Brady (of the Brady Bunch TV show) hired Alice as a housekeeper and to take care of his three sons after his wife passed away. She became so beloved by the family that they kept her on even after Mike married Carol.
Insuring the life of a stay-at-home spouse makes a great deal of sense.
Myth #4: If both spouses are making “big money,” neither needs life insurance
The theory here is that, in the event of a spouse’s death, the surviving partner (and children, if any) could carry on quite comfortably. The problem with this logic is twofold:
- What happens to the children’s financial future if the couple dies simultaneously?
- Many well-to-do couples invariably raise their lifestyles to reflect their joint success.
Although “comfortable” is a very subjective word, few of us would use it to describe any financial situation less prosperous than the one we’ve become accustomed to. In this case at least, buy enough life insurance to eliminate all debt and take care of future obligations.
Myth #5: Your house should be insured for its real estate market value
The recommended route is insuring based on the cost of rebuilding after a total loss (materials and labour). That number is totally different from what someone would pay you for your home and the lot it sits on.
Home insurance should cover loss that would be expensive for you to pay on your own. You could probable handle replacing a broken window yourself. Therefore, opt for a larger deductible and save up to 35% on your premium.
People believe that red cars cost more to insure than other-colour cars. The perception is that they get ticketed more often.
Insurers don’t use car colour as a factor in setting rates.