According to the 2015 Insurance Barometer Study, 65% of respondents said they didn’t buy life insurance because it was too expensive. “Expensive” is of course a relative term; what’s expensive to one person can be chump change to another. But with regards to life insurance, that misperception could have disastrous consequences.
That point was driven home by a meeting I recently had with the son of a colleague. The son (age 27) had recently bought a house and had his second child, and the only life insurance he had was a small group term policy at work. The son was reluctant to meet with me because he thought he couldn’t afford life insurance (misperception #1), but my colleague was ultimately able to broker a meeting.
At the meeting, we reviewed his income, assets, expenses, budget and goals. When I asked him how much life insurance he thought he should have, he underestimated by over half (misperception #2). When I told him how much I thought he needed to accomplish his goals, he became very nervous and defensive. I told him I would put together some ideas for him and present them at our next meeting.
He opened the next meeting by stating that he thought we were wasting our time, because there was no way he could afford a million dollars of insurance. I asked him to sit through the presentation, and buy whatever amount he thought was appropriate.
I explained term and whole life and the advantages and disadvantages of both. I then told him that based on his circumstances, I recommended that he apply for $1,000,000 of 20 year term insurance, which carried an annual premium of between $400 and $600, depending on his underwriting classification.
He was both surprised and delighted. He said that he thought it would cost several thousand dollars per year. When I asked him where he got such an idea, he replied he didn’t know, that’s just what he thought.
So that misperception of cost could have prevented him from getting insured, just as I’m sure that it prevents countless others from getting the protection their families need. He was lucky that his father insisted we meet; many others don’t have that degree of familial support.
That being said, the misperception of the cost of term insurance pales in relation to the misperceptions regarding whole life. The reasons for those misperceptions are very evident: seldom do the mainstream media run a positive article on whole life. It is usually depicted as an archaic, inflexible product that should be avoided at all costs, which of course isn’t so.
For example, are you aware that there are different types of whole life policies? Some are contractually paid-up at a specified time in the future. Others, while not contractually paid-up, have limited pay features. Still others have first year cash value equal to 90% of the premium. Most have riders that accelerate the quick pay feature and some have riders that pay long-term care expenses.
So get the facts. Don’t let a misperception keep you from getting the insurance that you want/need.