Tuesday, 24 December 2013

Biggest Insurance Myths: Are You Falling Prey?

The insurance industry is wrought with myths and misconceptions. Some people know that life insurance is important, but don’t really understand why, or at which point in the life cycle it should be acquired. Others don’t actually see the value in it at all and thus leave themselves or others in a financial dilemma when something unexpected happens.  Don’t fall prey to insurance myths. 

Here are the top three myths that far too many people buy into when it comes to life insurance. 

Myth #1: I am young, single, and don’t have any dependents – I don’t need life insurance. 

Reality: Even if you don’t have dependents, you likely have financial responsibilities, so what will happen to these if you are gone? Mortgage, car payments, loans, other personal debts – these will all need to be paid off, so who will these payments fall to? 

What about funeral coverage. Most of us, especially when young, don’t really want to think about funeral planning, but ignoring that fact that these are costly can leave your loved ones in a bind if some form of preparation is not done.  

With insurance, rates increase as you get older, so this is another reason that this myth is not accurate. Even if there are no dependents on the scene right now, things change. When they do, and you decide to finally get insurance, you will pay more. 

Myth #2: I'm better off investing my money than buying life insurance of any kind. 

Reality: Firstly, you need to identify the difference between investments and insurance before you jump to any conclusions, and keep the two separate. Investments involve risk, can include stocks, mutual funds or real estate, and the idea is that the risk will equal reward in the form of higher return. Insurance is primarily a policy that guarantees financial security to loved ones in the event of your death. 

When you invest, there is no guarantee that your money will grow or even remain stable, so banking on this can prove futile if you are not careful or take big risks. On the other hand, some insurance policies can be used as investments (whole life insurance for example) while still providing a guarantee that money will be there in the end if something happens.  

Myth #3: My term life insurance coverage at work is sufficient. 

Reality: Employee provided life insurance varies greatly, so it is critical, first of all, to review your policy and check the coverage limit. Some companies will provide adequate coverage, while others may only cover funeral expenses, thereby leaving all of your other financial responsibilities to your loved ones to take care of. 

Secondly, even if you feel as though your employee provided insurance is great, what happens if you leave the company or lose your job? Perhaps you feel stable in your current position, but you never know what could happen down the line and your coverage won’t follow you if you leave.  Additionally, if you leave at a later date and then search out coverage to supplement or replace a new employee provided policy, your rates will be higher (rates go up as we age). 

Insurance is a complex entity, and it can be easy to fall prey to the common misconceptions about it. Not knowing what type of policy you need or the amount of coverage can be easily remedied by talking with an insurance advisor, but avoiding insurance all together is a bad idea! 

For more about common insurance myths and how to avoid falling prey please contact Independent Financial Concepts Group today at 1-416-849-1653 or visit www.wecoveryou.ca.