#1: I'm better off investing my money than buying life insurance.
When solely depending on investments in the early years of your life you are taking quite a large chance, especially if you have dependents. If you die without life insurance coverage for your family there may be no other means for your family to acquire income upon your death once your assets are depleted. Not to mention many families and breadwinners I consult with regarding life insurance are interested in their families being able to maintain the standard of living they were used to prior to the death of a breadwinner. If you are depending on your family to deplete their assets in order to replace the income you had provided them then they may find themselves someday in need of additional income beyond what your assets can provide them.
#2: I'm single and don't have any dependents, so I don't need coverage.
Regardless of your marital status or the number of dependents you have, even a single individual needs at least enough life insurance coverage to pay off any personal debt left behind as well as medical and funeral costs (average funeral costs range from $5,000 - $10,000 depending on location and services needed). Remaining uninsured, you may leave a legacy of debt of unpaid debt and expenses for your family to deal with. In addition, life insurance can provide single people with an option to leave a legacy to a preferred charity, religious affiliation or other cause.
#3: Twice the amount of my salary is all the coverage I need.
Think of it this way. Let's say you were the sole breadwinner for your family and you had a 10 year old child or two and you make $100,000 per year. How long do you think your family could live on $200,000 upon your death? Considering your family will have a mortgage to pay, food and clothes to buy and a vehicle and home to maintain, that money won't last very long at all, especially if the family has debt to pay off as well, in addition to funeral and medical costs they incurred as a result of your passing. An industry rule of thumb for how much coverage a breadwinner needs is {10 x your annual income}. This would allow your family enough income to cover themselves for at least 10 years. Take into account the college tuition you'd like your children to have and even more coverage would be necessary to leave them an education fund. A cash flow analysis is usually necessary to determine the true amount of life insurance coverage that must be purchased to protect your family adequately.
#4: I have life insurance coverage at work, it's sufficient.
This depends on your marital and family status. If you're single then employer provided term life is probably sufficient. However if you are married with dependents or potentially need the coverage to pay for any estate taxes upon your death then simply holding employer sponsored term life coverage is not sufficient. Another thing to consider is that if you ever leave your job most employer sponsored life coverage is not portable. If your next job you acquire does not provide life coverage then you will be in need of an individually owned policy. The problem then is how old are you now? You've been depending on life insurance coverage from work and now you are 10 years older. The older you get the more expensive life insurance gets, in addition the older we get the more likely our health will diminish which means our insurability will decline as well resulting in rate increases. Take advantage of an individually owned life insurance policy while you are still young and healthy.
#5: Always invest in the return-of-premium rider (ROP) on your policy.
This is absolutely untrue. It depends on your preferences and budget. If it falls within you or your family's finance budget then it should be considered. A cash flow analysis will reveal whether you could benefit from investing the amount of the term rider elsewhere versus including it in the policy.
#6: Only breadwinners need life insurance coverage.
This is absolutely untrue especially these days. The estimated value of a homemaker's annual income has been said to be approximately valued at $100,000 per year. A homemaker has taken on the role of nanny/babysitter, house cleaner, cook, chauffeur, wife and at times teacher. A breadwinner would be in dire straits to learn that the homemaker is no longer there to take care of the house and children while at work. However if the homemaker has adequate life insurance coverage and happens to die then the breadwinner will be able to afford to pay for daycare services to watch the kids while at work and a maid to clean the home while busy attending to the children. This income would be a life saver for a single breadwinner with dependents.
#7: Variable universal life policies are superior to straight universal life because of their long-term growth potential.
Due to variable universal life (VUL) policies having non-guaranteed interest rates there is a potential for a VUL policy to under-perform the guaranteed interest rate of a universal life (UL) policy. However on the other hand do to the VUL policy fluctuating with the market it also has a potential to accumulate more cash value than a traditional UL policy by achieving a higher interest rate than the guaranteed interest of a UL policy.
#8: Buy term insurance and invest the difference.
This depends. If you don't hold many assets and have no need for permanent life insurance then sure, just buy term coverage. HOWEVER...if you have a need for permanent life insurance coverage such as to take care of covering your estate taxes or leave a special needs child with income, then term insurance isn't going to cut it.
#9: I absolutely must have life insurance at any cost.
This depends. If you have no dependents or debt and have accumulated sizable assets then you probably won't need life insurance coverage. The concern in that case would be any medical and funeral related costs you may be leaving behind for your family to take care of. However again, if you have accumulated sizable assets then that can be used to take care of those final expenses.
#10: The cost of my premiums are tax deductible.
Unfortunately, in most cases this is true. Personal life insurance premiums are NEVER deductible. However, if you are an employer and purchase it as a benefit for your employees, than the premiums is deductible. However, some of the premiums may be taxed at the employee level.
In conclusion the above misconceptions I've listed regarding life insurance are many of the very questions the public and many of my clients tend to ask. Bottom line unless you are single without dependents or have amassed a lot of assets the need for life insurance coverage is very real and very necessary for the financial well being of your family and dependents.