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10 Common Life Insurance Myths Debunked

Last Updated on February 12, 2022

Many put off thinking about life insurance, whether it’s buying it, or even researching or speaking to a professional about it. Most procrastinate because life insurance is seen as confusing, while others misunderstand the point of life insurance.

Others, still, have had bad experiences with claims and the process of purchasing life insurance. It’s understandable why some might prefer to watch paint dry, than to go through dealing with life insurance.

Some of this apprehension might be valid, but others could just be classic cases of misunderstanding. We’ll go through some of the most common myths and debunk each one for you..

Myth #1: Buying insurance means only getting money back when I’m dead

There are different types of life insurance plans, such as term, whole life, and investment-linked insurance plans. Those who go with whole life and/or investment-linked insurance plans will get back cash returns when they surrender their policies, should they decide that holding on the policies does not serve their needs, or if they run into financial issues and need liquid cash on hand.

Whole life insurance plans accumulate cash returns from the guaranteed amount and accumulated bonuses, which the insurance companies declare annually. In addition, there is also the non-guaranteed performance/terminal bonus at the point of policy surrender.

Investment-linked insurance plans accumulate cash returns from the investment  in mutual funds that the policyowner decided on. The cash returns will depend on the market performance of the funds invested into.

Typically, there isn’t a designated period during which to surrender whole life or investment-linked insurance plans in order to get returns. It will depend on the performance of the plans vis-a-vis the total premiums contributed, as well as the protection needs vis-a-vis the financial needs of the insured.

Myth #2: I already have an integrated shield plan and therefore don’t need life insurance

Integrated shield plans can only provide coverage when an individual incurs expenses because of inpatient or day-surgery treatment, or related pre- and post-hospitalisation costs. They do not provide payouts to cover expenses such as  alternative treatment, supplements or vitamins, and most importantly, the loss of income in the event of critical illness.

To get those covered, life insurance with critical illness benefits added will be required.

Myth #3: Young children do not need whole life insurance

Critical illness and disability can happen to anyone, including young children. Should something unfortunate happen, their parents are likely to take on the role of dedicated caretakers, and suffer income loss.

While it’s important for parents, as breadwinners of the family, to be insured, it’s still wise to consider whole life insurance for young children while they are healthy and young. Premiums for them will be lower and locked in, given their young age.

As a bonus, if nothing untoward happens, these plans can be offered as a gift when the children grow up.

Myth #4: Buying insurance is too expensive

As mentioned earlier, there are different types of insurance plans out there that suit different needs and requirements.

If an individual is looking for more cost-effective premiums, they can consider taking up a term plan, which is more affordable compared to whole life and investment-linked insurance plans. It can cost less than $1 a day to get covered!

Myth #5: I have insurance coverage from my employer, so I don’t need to get my own

Yes, group insurance provided by your company can give decent coverage, but that coverage exists only as long as an individual is employed by the company.

Should an employee leave for another job, and already has some pre-existing conditions, their new employer may not be able to provide sufficient coverage. If the employee seeks their own coverage then, it could prove to be challenging, and be made to purchase insurance plans with exclusions.

Myth #6: I have no dependents, so I do not need any life insurance

Not having any dependents might mean not needing to leave any payouts behind when one passes on. But one must consider what happens in the event of disability or critical illness, which results in loss of income. An individual may still need a lump sum payout to cover their day-to-day expenses.

Here’s a handy calculator that can help you have an idea of how much insurance coverage you need.

Myth #7: My spouse or children can take over the mortgage, so I don’t require life insurance

Imagine a scenario in which a person dies, and leaves behind a property that still has an outstanding mortgage to be paid. The person’s surviving spouse or children may not have the capacity to secure the property loan from the bank. This could be due to a variety of reasons, among them loan eligibility or property taxes.

Myth #8: I don’t intend to live in Singapore forever, so there’s no point buying one in Singapore

If there is a real gap in a person’s protection needs, it does not matter if one intends to stay permanently in a country or move on elsewhere since the person will still find himself caught out by an expected life event.Life insurance policies typically provide worldwide coverage.

Alternatively, one can also consider an insurance plan customised to provide short-term coverage and which offers renewability options to continue if one decides to do so.

Myth #9: I will have to pay premiums until I die

Insurance products are constantly evolving and innovating to cater to consumers’ demands in the market. There are no shortage of insurance plans today that do not require you to pay premiums for a long period or until death. The best part: coverage can continue even after the premium payment has ended.

Myth #10: Getting a term plan and investing the rest is what everyone should do

Buying a term plan, investing the rest of your money, and maximising your returns is a popular mantra that’s common and ideal. It’s also one that requires discipline to achieve the best possible outcome.

The time involved and investment knowledge required to execute it may not be available to everyone. Without these attributes, it may be challenging and results may not be as optimal as buying a whole life plan.

To start adopting this strategy, start with a term plan that covers disability and critical illnesses before you start investing.

Read more: Life Insurance in Singapore — Whole Life, Term, and Which You Should Get

Conclusion

Life insurance, as the name suggests, is something that concerns your life and should be handled with care and due diligence. When in doubt, it’s always wise to seek professional advice from a licensed financial advisor.

Know of any other myths, or are there any other schools of thought regarding life insurance that you’d like to discuss or clarify? Share them with us at ask@plannerbee.co.

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