Posted by Susan Shoptaugh on Apr 30, 2014 i

Misconceptions about Life Insurance

There are a lot of misconceptions about life insurance; as an agent you need to be able to help clients decipher between fact and fiction. One way to begin a discussion about life insurance is to arm yourself with valuable statistics. For example, 70% of American households with children 18 and younger would struggle meeting everyday living expenses in a matter of months if the primary wage earner passed away. And 40% of households in that same category would immediately have trouble meeting daily expenses.

A study published by the Federal Reserve Bank of New York reveals that 75% of respondents have credit card debt; among singles, there is a 20 percentage point discrepancy between those who report that they have credit card debt and those who actually owe. Among couples, this discrepancy increases to 30 percentage points. So, when discussing life insurance coverage, it is important to have them consider any debt they may have such as a car loan, mortgage, unpaid credit cards or student loans.

Here are some common misconceptions and the facts to help you overcome these obstacles to selling.

Life insurance is too expensive.

According to a study conducted by LIMRA, 85% of participants said they thought life insurance was too expensive. However, many of these participants overestimate the cost by hundreds of dollars. If your clients are coming into a conversation about life insurance with this preconceived notion, they may be unwilling to hear the benefits a policy could offer.

Start off by letting them know that over the past 16 years, the cost of simple term insurance has gone down by more than 60%, making it more affordable than they may have thought.

Life insurance is only necessary for breadwinners. 

This common misconception is relatively easy to understand; it’s reasonable to correlate life insurance with the loss of salary. 

It’s valuable to point out the many ways a non-working spouse can contribute to the overall financial well-being of a family. The stay-at-home spouse is often responsible for valuable services that would otherwise cost the family extra money, such as housekeeping or childcare. According to a census report released last year, the average weekly cost of childcare is up to $143 per child. Life insurance for a spouse can help cover those newly needed expenses should the unthinkable happen.

I am young (and invincible). I don’t need life insurance.

This can be a frustrating myth to debunk because realistically none of us know when our number will come up. Like all insurance, life insurance is bought before you need it.

But, often trying to convince someone that they’re not invincible is a fruitless task. Life insurance rates are directly correlated with the insured’s age, therefore for most coverage options the longer you wait the higher your rate will be. Helping them see the long-term financial benefits may clarify the value of purchasing life insurance coverage today.

Once you have a policy, you don’t have to worry about it anymore.

There is currently more than $1 billion in life insurance benefits unclaimed.This is largely due to the fact that many beneficiaries are unaware of the policies or how to collect. 

Policy owners need to review their policies periodically. Life has a funny way of changing, and your clients’ coverage should change with it. It’s best to revisit policies annually to ensure that it is up-to-date.

70% of American participants failed a recent life insurance IQ test conducted by LIMRA, showing that most don’t understand the basics of life insurance.

There are two basic types of life insurance beneficiaries, a primary beneficiary and a contingent beneficiary.   Individuals frequently designate their spouses and children as their life insurance beneficiaries, but estates, trusts, businesses and charities can be named as well.

A lot may change between the time a policyholder designates a beneficiary and the policyholder’s death.  Their beneficiaries may relocate, marry and change names, or they may even pass away prior to the policyholder.  These occurrences also contribute to the amount of unclaimed life insurance policy proceeds.

Your trusted adviser and industry expert, should have communicated the importance and value of having life insurance.  Now you they should play a significant role in helping their clients ensure their families claim their life insurance policy proceeds.  Their relationships with policyholders lets them help the families ensure their beneficiaries do not leave any life insurance policy proceeds unclaimed.  Let’s take a look at a few tips.

1. When you identify your beneficiary make sure you include his or her full name, relationship, social security number and date of birth.
2. Identify a secondary beneficiary just in case your primary beneficiary passes before you do.
3. Let your beneficiary know that they are your life insurance policy beneficiary.  If your beneficiary is a child, make sure that you share this information with the individual who will be the executor of your will.
4. Inform your beneficiary of where your policy information is located.  This will keep those you leave behind from having to reach out to former employers or searching bills and banking information to determine if a policy ever existed.
5. Review your policies every couple of years to ensure that your beneficiary information is current.  Let your agent know that changes need to be made, and take the required steps to complete the changes.