4 Common Misconceptions About Life Insurance Explained

Nobody likes to think about the possibilities of death or terminal illness. Though life insurance may be a scary thing to purchase especially when you are young, it is absolutely necessary.

In the event of death, terminal illness or total and permanent disability (TPD), life insurance can issue payouts to either the named beneficiaries or dependents as listed by the insured. It is a plan that helps to cushion any financial burden that may fall onto the hands of your loved ones.

There are a few types of life insurance – whole life, term life, and investment-linked policies. Whole life insurance offers a single coverage of up to 99 years, whereas term life insurance allows the insured to decide if he/she would like to be covered for a certain term period, up to 99 years. An investment-linked policy is more of a hybrid product; it provides both life insurance as well as wealth accumulation.

Due to the many misconceptions that surround life insurance, some people may put off purchasing them. Perhaps they think that they are still young and thus don’t require life insurance, or that perhaps putting their money into their savings account is better than a life insurance plan.

In order to give you a better understanding of life insurance, here are five common misconceptions that many have, explained.    

1. I am young and healthy. I don’t need life insurance.

When you are young, the thought of buying life insurance may not cross your mind. However, it is precisely while you are young and healthy where you should purchase life insurance.

Should you wait till you are diagnosed with a medical condition, you may not be able to purchase a life insurance plan at all, or you would have to pay an additional premium load.

Insurance premiums are also cheaper while you are younger for both term and life insurance. Most of these have different premium prices at different age brackets, with an upward increasing trend.

This is because the chances of you being diagnosed with an illness increased as you age, increasing the possibility of the insured making a claim on the policy. Hence, life insurance premiums are cheaper when you are younger. The longer you wait, the more expensive life insurance plans will be. With continuous procrastination, it may be too late to get it when you really need it.

Even if you are extremely healthy, with an active lifestyle and a well-balanced diet, life is unpredictable. Hence, there is no better time to be prepared than now, when you are at your strongest.

2. It’s expensive & not worth it.

As a young working adult, paying a few hundred dollars a month on a life insurance premium may seem like a pretty big commitment as well as an “unnecessary” expense.

Depending on your financial needs and preferences, you can choose between term and whole life insurance.

In general, term life insurance tends to be cheaper than whole life insurance. This may be attributed to the fact that certain whole life insurance comes with cash value. This means that should you want to surrender your policy early, you can receive the cash value that is available in your plan.

A life insurance plan gives you assurance and peace of mind that greatly outweighs the cost of the insurance scheme itself. Every single penny is worth it knowing that your family is financially well-protected after you have passed or if you are diagnosed with TPD and unable to earn income.

3. It’s better to save money in the bank rather than pay for life insurance

Perhaps you think that your money is better off earning interest in a bank savings account than being used to pay for life insurance. However, accidents and illnesses can strike anytime. It is easy to be caught off guard especially when you least expect it.

Let us take a scenario of an individual without life insurance contracting a terminal illness at an earlier-than-expected stage of life. The financial impact of this would be two-fold.

Despite having a savings account, the individual may not have enough funds in their savings account to pay for the unexpected treatment expenses. Additionally, the inability to work during the period of illness will lead to other expenses dwindling down the limited savings further.

Thus, a savings plan and life insurance are not substitutive of each other. It is recommended that you have both a savings account and life insurance. The latter is used for unexpected financial contingencies caused by unforeseen circumstances such as cancer, where you might incur a lot of unexpected costs through treatment and test. On the other hand, the former can be used for purchase of big-ticket items such as buying a house in the future.

4. I only need life insurance if I have dependents

Dependents in general may refer to children who are not financially independent yet, as well as elderly in your house that you are providing for financially.

Having life insurance when you have dependents means that they will receive a pay out in the event that you have passed away or are incapacitated due to illness. This can help them to tide through the financial instability with the loss of an income.

However, even without dependents now, you can still purchase life insurance for your dependents in the future. This is especially so since life insurance is cheaper when you are young, as we have mentioned.

Additionally, for those who might not plan on having a family, it is all the more important to purchase life insurance for yourself. If you ever become disabled in future or become diagnosed with a critical illness, you will need another source of financial support. Life insurance can help to provide daily living expenses so that you don’t have to be a burden to your other family members.

Should you continue to hold off purchasing life insurance, you may find yourself in a bind with other financial commitments or when the unforeseen happens. Do not be caught unprepared. The best time to buy is now.

Understanding life insurance

With some of the misconceptions on life insurance explained, you now have a better understanding about life insurance. If you are interested in getting a life insurance plan for yourself, do remember to consider your financial needs.

Investing in a life insurance plan is not just for yourself, but for the people you love as well. It is highly recommended that you get life insurance while you are young and healthy, as that is when the plan is most affordable. Purchasing life insurance also allows you to plan early for the future.

For an added layer of protection, AXA life insurance comes with a wide variety of different riders. These riders are add-ons that you can purchase on top of the core life insurance plan.

For example, you may consider adding an Early Critical Illness Benefit rider onto your insurance plan. In the event you are diagnosed with an early stage of a critical illness, you will be eligible for a pay out that can help cushion some of the fees for your medical treatment and recovery.

Disclaimer:

This article is for general information only and does not take into account the specific investment objectives, financial situation or needs of any particular person. The views expressed herein do not necessarily reflect the views of AXA Insurance Pte Ltd and should not be construed as the provision of advice or making of any recommendation. There is no intention to distribute, or offer to sell, or solicit any offer to purchase any product. We recommend that you seek the advice of a qualified financial advisory professional before making any decision to purchase an insurance or investment product. Whilst we have taken reasonable care to ensure that all information provided was obtained from reliable sources and correct at time of publishing, information may become outdated and opinions may change. We are not liable for any loss that may result from the access or use of the information herein provided.