Many misconceptions exist about the life insurance industry, as well as life settlements. According to a 2021 study performed by PolicyGenius, just over half of Americans currently hold some form of life insurance. With the majority of the population taking up this investment, it’s important that policyholders understand all of their options as it pertains to the matter. In this blog, we’ll highlight some of the most common myths associated with life insurance and settlements.
Myth 1: Life insurance is expensive for the policy owner
The amount you spend on your life insurance premium largely depends on your age, health condition, and amount of coverage you desire. However this is hardly the case, especially for healthy adults of all ages. The average cost of life insurance for a 30-year old woman looking to acquire a $500,000 policy on a 20-year policy will pay about $208 per year, according to Quotacy. A man of the same age with the same policy can expect to pay $242 annually.
Myth 2: Life insurance isn’t important if you’re young, healthy, and single
This is probably one of the biggest misconceptions. Investing in life insurance while you’re young and healthy, as you’ll pay much less for the same policy. As you age and begin to potentially develop health problems, insuring you becomes riskier for life insurance companies, and that cost will inevitably be passed down to you. It’s best to buy life insurance as early as possible, as you’ll never know when you might actually need it.
Myth 3: You should set money aside for savings rather than buy life insurance
Before committing to life insurance, many consumers will compare purchasing a policy to simply setting a portion of their income aside in a savings account. The truth is, both can be done without causing a significant financial strain to the policyholder. The monthly premium for a $500,000 20-year term life insurance policy is estimated at about $20.95 for a 20 year old woman who is a non-smoker ($27.40 for men), according to PolicyGenius. A 40-year old woman of similar health can expect to pay $32.53 a month for the same policy ($39.16 for men). With the Bureau of Labor Statistics reporting that the average full-time worker brings in about $4,000 per month, most policyholders can easily afford to pay their life insurance premium while depositing 20% or more of their income into a savings account.
Myth 4: Life insurance settlements are unregulated, and therefore unsafe for the policy owner
This myth couldn’t be further from the truth. In fact, the life insurance settlement industry is heavily regulated and considered completely legal by the United States government. In the 1911 Supreme Court case of Grigsby v. Russell, Justice Oliver Wendell Holmes explains that life insurance policies encompass all the traits of personal property and possess the full functionality of an asset. As such, life insurance is equivalent to stocks, bonds and other investment properties that can be freely transferred at the will of the owner. This decision set the precedent for life insurance settlements and thus, protects policyholders who wish to engage in the practice.
Myth 5: If you cannot pay your policy any longer, your only option is to let it lapse
With life insurance policies having a common term of 20-30 years, it’s not uncommon for the policyholder’s financial situation to change during this time. If you find yourself in this situation, you don’t necessarily have to let your policy lapse. There are a few different options for you, including selling your policy, reducing your death benefit for lower premiums, or even donating it to charity.
Myth 6: Life insurance settlements are too difficult to understand
The ‘difficulties’ of life insurance as a whole is a common reason many decide not to invest in a policy. When it comes to life settlements, there are even more misconceptions that exist about the industry. While the process of settling can be confusing, partnering with a trusted advisor will help you navigate all the ins and outs with ease. For more information on life settlements, subscribe to the LISA Blog.
Life settlements are safe, inexpensive investments with minimal downside. While you can obtain a policy at any age, it’s best to begin looking as early as possible for lower premiums, especially if you’re currently in great health. If you’re still confused about whether or not a life insurance policy would make sense for you, be sure to consult one of our authorized life insurance professionals, a LISA Member today