Debunking Five Common Life Insurance Myths

Introduction to Insurance Myths

When it comes to life insurance, it could all feel very confusing. In fact, there are many Insurance myths, who needs it, and who doesn’t. Today, we’re going to debunk five of them.

There’s a lot of misinformation out there when it comes to life insurance and a lot of conflicting, what we would call, opinions on what’s the right way, what’s the wrong way, what’s the best time to buy, and when don’t you need it anymore.

Myth 1:

“I’m young, single, and healthy. I don’t need life insurance.”

Well, that’s quite the statement, right? Because when you’re young, single, and healthy, that’s when you have the most cash flow to afford life insurance at the end of the day, right? Number one, cash flow. Number two, health, which is something that we can’t get back. And number three, that young age is going to keep that premium as low as possible. In fact, you’re never going to be younger than you are today. Life insurance is never going to cost less than it is today, and that’s especially true for whole life insurance.

• Term life insurance locks in:
  • A fixed death benefit
  • Your current health status
  • Coverage only for a limited time
• Whole life insurance lets you:
  • Build and accumulate cash value inside the policy
  • Access that cash with full liquidity, use, and control
  • Leave a death benefit to beneficiaries regardless of when you pass
• The saying:
  • You pay for life insurance with your money (premiums)
  • You buy life insurance with your health
• The best time to buy life insurance is when you are:
  • Young
  • Single
  • Healthy
• Premiums are lower and disposable income is often higher before major life changes like marriage and kids.
• This debunks the myth that young, single, healthy people don’t need life insurance.

Myth 2:

“Life insurance is expensive, especially whole life insurance.”

Right? How often have we heard that? But when it comes to whole life insurance, there’s a gross cost and there’s a net cost. The gross cost is the amount of premium going out every month, and that’s determined by your age and the cost of insurance at that time. But then there’s a net cost, the premiums going out less the cash value accumulating within the policy. Over time, we know that that net cost is often zero, especially when you’re working with a dividend-paying, mutually owned whole life insurance policy company.

• People often say life insurance is expensive, but it’s important to ask:
  • “Do you mean price or cost?”
• Price is what you pay now; cost is what you truly give up over time.
• With properly designed whole life policies, the net cost can be zero—or even positive—over time.
• These policies are designed for cash value accumulation.
• Whole life insurance includes two key promises from the insurance company:
  1. Pay the death benefit whenever the insured passes away.
  2. Build cash value equal to the death benefit by the policy’s maturity age (typically 100 or 121).
• The insurance company is contractually obligated to fulfill these promises.
• Your only responsibility: pay the fixed premium consistently (monthly or annually).

Myth 3:

“I only need life insurance until the age of retirement or age 65.”

Yeah, and that’s a great point because now we’re dealing with a lot of folks in their 60s. Think of it this way: if you’re unsuccessful at saving money or accumulating assets, you probably have children and grandchildren that you want to leave something to. If you don’t have life insurance and you haven’t accumulated enough assets, there may not be anything that you could leave as a legacy.

• Life insurance lets you buy discounted dollars—you pay less in premiums than the death benefit you receive.
• This applies especially to term life and whole life policies (less so with universal life).
• It’s the least expensive way to guarantee a financial legacy for your family.
• Wealthy individuals may need life insurance to cover estate taxes, allowing heirs to inherit assets without a financial burden.
• Life insurance can solve two major issues after 65:
  • Estate size problems
  • Estate tax problems
• Life insurance is often one of the most valuable assets at age 65.
• The key is buying it early—ideally around age 40 or 45—to lock in value and coverage.

Why Life Insurance Still Matters After 65?

Thinking on that even further, at the end of the day at age 65 in retirement, the cash value in your policy is actually the most valuable dollars that you have in your portfolio a lot of times. We have the retirement savings that are 30 to 50% less than what is actually there because of taxes, whether it be income taxes, Social Security, Medicare, all those taxes. Then also, if we have a stock, a non-qualified account, we have taxes to worry about there as well. The life insurance cash value is accessible tax-free through the loan provision, and all of those premiums you paid in after with after-tax dollars are also accessible on a tax-free basis.

I think just looking at it from a practical perspective, one of the things I found is that my clients who are in their 60s and 70s, they don’t want to get rid of their life insurance. They want to buy more. So that myth that you don’t need life insurance after age 65 is exactly that—it is a myth. Because maybe you don’t need it, but I can assure you, when you hit 65, you will want it. And again, the key is if you have it for 15, 20, 30 years prior to that, you don’t have to make that decision. You already have it.

Myth 4:

“Life insurance is a lousy investment. It has a terrible return on investment.”

We get that a lot. Here’s what I always say: life insurance is not an investment. If you’re looking to compare life insurance to an investment, you’re comparing apples to racing cars at the end of the day. You’re looking at comparing two completely different things. I would contend that life insurance does so much more for an individual than an investment that it’s actually an insult to life insurance to compare it to an investment.

• Investments come with inherent risks.
• Whole life policies designed for cash value accumulation carry no market risk.
• The policy is a contractual guarantee between you and the insurance company.
• You pay premiums/deposits, and the insurance company guarantees the agreed benefits.
• Life insurance offers stability and guaranteed growth.
• It may not seem “cool” or “sexy” like other investments, but it provides reliable long-term value.
• It’s designed to support your financial goals throughout your life.

Cash When You Need It

Think about what investments do. Yes, they can grow faster for sure, but you know you can’t put a price tag on having access to money when you need it most. What if you have a medical emergency and you need to access cash, and you have money invested in a stock that’s running away? Well, maybe that’s not the right time to access that or sell that stock. Wouldn’t it be great to be able to access money from your life insurance to get you through the emergency so you don’t have to liquidate your valuable investments at a time that’s sort of inopportune?

• You have full access to your life insurance policy’s cash value — use it however you choose.
• This offers complete liquidity, use, and control.
• If a great investment opportunity arises (e.g., a stock you want to buy low), you can act on it.
• You can borrow against the cash value with no questions asked.
• Once the investment pays off, you can repay the loan and restore your policy’s value.
• This flexibility makes the policy a powerful financial tool for seizing opportunities.

Myth 5:

“Only buy term insurance because whole life is too expensive.”

We get that a lot. So then what people are saying is, “Well, why don’t we just buy term and invest the difference?” Well, that may work or it may not. We don’t know because we don’t know how the market is going to perform prospectively. It may do very well or it may not. Here’s the thing: even if it works to buy term and invest the difference, in order to access that money or to have that money in the investment, you’re subject to market losses, you’re subject to taxes, and you might have limited access in order to get at that money.

• “Buy term and invest the difference” is a common strategy.
• It can outperform whole life insurance — in theory.
• But it’s based on possibilities, not guarantees.
• Whole life insurance offers certainty and guaranteed benefits.
• Studies show that while people often buy the term insurance,
  • They rarely invest the difference as planned.
• The strategy fails for most because it requires a high level of financial discipline.
• This is why “buy term and invest the difference” is often considered a myth—it doesn’t work for everyone.

Conclusion

So when it comes to life insurance, we know that there are several myths out there, and I think we debunked a few of them. It’s not how much money you make, it’s how much money you keep that really matters. So, these are Insurance myths.