Half the time, being a parent means moonlighting as a mythbuster: No, if you swallow an appleseed it won’t turn into a tree. No, stepping on a crack won’t actually break your mother’s back. No, crossing your eyes won’t make them stay that way.
Now it’s our turn: There are a lot of myths floating around when it comes to life insurance. This is our updated guide to sorting fact from fiction, and learning how life insurance really works.
Here are the top myths we’ve heard (and the actual facts).
A question we hear sometimes: “Do I really need life insurance?” If you were gone, life insurance could give your loved ones more financial breathing room.
If you were to unexpectedly pass away while your kids are still young, would your spouse be able to handle everything financially without you? What about your funeral and other last expenses? What about the cost of additional childcare?
Life insurance could help keep your family afloat in your absence.
If you co-own a mortgage, your spouse or co-signer would be on the hook to keep paying it off. And if not, the person who inherits your home could be responsible for paying it off. If that person doesn’t have the cash to keep up with your mortgage payments, he or she may be forced to sell the house.
If you want to avoid that situation, life insurance might be a good fix.
Many employer-sponsored group life insurance plans max out at $50,000. For most people, that’s simply not enough.
Plus, when you leave your job, you’ll usually forfeit your insurance. You might have an option to convert your policy so you can take it with you, but your monthly premium payments would likely go up. If you choose to buy your own individual policy instead, it’ll probably cost more now because you’ll be older.
If you have student debt, you’re not alone: 44 million borrowers have $1.5 trillion in student loans. Your co-signer (and in some cases, your spouse) may be on the hook if you pass away. Federal loans would be discharged, but not all private loans will discharge the remaining balance. The co-signers for your student loans could be held responsible.
What about other kinds of debt, like credit cards? If you have a joint account holder, he or she would continue to owe money after you pass away. Even without joint account holders, outstanding debts could reduce how much you pass on to your heirs. For example, if your estate can’t pay off your car loan, the car could be repossessed.
If you want to make sure that your nest egg goes to your loved ones rather than paying off your debts, life insurance could make sense for you.
Most life insurance takes your health into account when determining whether you can be offered coverage. That includes looking at your weight.
But it’s normal to gain weight when you’re pregnant! Insurance underwriters know that. If you’re having a healthy pregnancy, it’s possible for you to get the same rate you would’ve gotten even if you weren’t pregnant. Here’s more on what you should know about applying for life insurance while pregnant.
If you co-own a business and die unexpectedly, life insurance could help your business partner continue the company without you, and pay off any debts in your absence. You might actually need life insurance in order to secure a small business loan from the government, and some business partnership agreements and succession plans require life insurance, too.
An insurance policy could also help protect your personal property if you put it up as collateral for the business.
The older you are when you purchase a policy, the higher your monthly rate will likely be. Locking in today’s rates could mean a lot of savings down the road. This is true wherever you live. (For example, here are the healthiest cities in America.)
Traditionally, applying for life insurance required scheduling a visit with an insurance agent. But luckily, technology has been making this much smoother in the last few years.
If you apply online for life insurance through a company like Fabric, you may be able to get through the whole application in as little as five minutes. If qualified, you could even receive an offer for coverage right away. (Check out even more myths specifically about no-exam life insurance.)
Of course, in some cases your application may still need to be reviewed before the company can decide whether you can be covered and for how much.
Two of the most common types of life insurance areterm and whole life insurance.
Term life covers you for a certain time period. So, if you have a 20-year term, you’re covered if you pass away during those 20 years. Your beneficiaries won’t receive anything after that time runs out.
By contrast, whole life insurance lasts for your entire life. In addition to paying your beneficiaries upon your death, whole life policies can also build cash value over time, which you can borrow against or withdraw from while you’re alive.
It’s true that you don’t get your premiums “back” with term life insurance. But many people choose term because whole life insurance tends to be more complex and much more expensive. Like, many times more expensive.
A 30-year-old, non-smoking man in excellent health in California might get a quote of $460+ per month for $500,000 coverage on a whole life policy (according to a quote we got from State Farm), and only around $24 monthly for 20-year term life.
Fabric exists to help young families master their money. Our articles abide by strict editorial standards.
Fabric by Gerber Life exists to help young families master their money. Our articles abide by strict editorial standards.
Information provided is general and educational in nature and is not intended to be, and should not be construed as, financial, legal, or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. We make no warranties with regard to the information or results obtained by its use, and disclaim any liability arising out of your use of, or reliance on, the information.
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