5 Common Life Insurance Myths Debunked

Quick look: Life insurance provides protection, stability, and peace of mind. Yet, its value is often overlooked, leaving families at risk if the unexpected happens. Here, let’s bust some of the most common life insurance myths, explore the latest coverage trends, and review how a professional employer organization (PEO) helps small businesses make it more accessible and affordable.

You don’t think about it every day, but life can change in an instant. That’s why life insurance is a critical benefit, easing families’ financial worries as they navigate end-of-life arrangements and enabling them to maintain long-term economic security. Still, misunderstandings about it can hold people back from benefiting from coverage.

September is Life Insurance Awareness Month, a time dedicated to “educating consumers about life insurance and its vital role in protecting families’ financial security.” In recognition of this month, we’re sharing current coverage facts, debunking five life insurance myths (and the truths behind them), and explaining how employers can provide peace of mind and build awareness by partnering with a professional employer organization (PEO).

Life insurance coverage at a glance

Before discussing common misconceptions about life insurance, it helps to understand the basics: who has coverage, how much they have, and why some choose to purchase it (or not). Trade association LIMRA explores these topics in its 2025 Insurance Barometer Study, with key findings including:

• 51% of American adults have life insurance coverage (individual and/or group), and 55% of workers have coverage through their employer
• 54% of men and 48% of women own life insurance
• Gen Z and Hispanic adults are the least likely demographic groups to own life insurance
• 40% of American adults, or nearly 100 million people, believe they need more life insurance
• Top reasons people purchased a policy include:
  • Covering burial and final expenses (60%)
  • Transferring wealth or leaving an inheritance (42%)
  • Helping replace lost income from a wage earner (26%)
  • Paying off a mortgage (20%)
  • Supplementing retirement income (19%)
• Main reasons people avoid purchasing coverage include:
  • Thinking it’s too expensive and competing financial priorities
  • Uncertainty about which type of coverage is right
  • Believing they won’t qualify for a policy
  • Not having been approached by a life insurance agent

5 life insurance myths and their truths

Realizing the importance of life insurance is essential for employees at every stage of life, from young professionals to those nearing retirement.  Yet, despite its importance, misconceptions about life insurance continue to circulate. Here’s a look at five of the most common myths and why they couldn’t be further from the truth.

Myth #1: I don’t need life insurance because I’m young and healthy.

Truth: This belief often leads young adults to delay purchasing life insurance coverage until they have families or become older. However, rates are usually lower for younger and healthier individuals, and securing coverage earlier ensures protection in case of an unexpected event.

Myth #2: Life insurance is too expensive.

Truth: LIMRA research found that many people believe the price of a life insurance policy is significantly higher than its actual cost. However, while some types can be costly, there are many affordable options available, including term life insurance policies.

Working with a PEO can help employers offer competitively priced coverage to their staff. By pooling the risk of a large group of employees, a PEO negotiates lower premiums with insurance providers, making life insurance more affordable for small businesses and their workers.

PEOs also provide benefits administration services that help reduce the costs associated with insurance, such as enrollment, claims processing, and premium payments. By handling these tasks, the PEO lessens the employer’s administrative burden, which can translate into time and financial savings.

Myth #3: I only need life insurance if I have dependents.

Truth: Having dependents is one reason to consider life insurance, but it’s also beneficial in other scenarios. For example, purchasing coverage may make sense if you have significant debt or a mortgage that would be difficult for your loved ones to pay if something were to happen to you. Families face many expenses in the event of a person’s passing, and life insurance can help ease the financial burden.

Myth #4: A savings account can replace the need for life insurance.

Truth: While savings and investments are important, life insurance provides additional financial protection by equipping families with the financial resources they need to maintain their standard of living and cover expenses like funeral costs and outstanding debts.

According to a survey by GOBankingRates, 39% of Americans have $250 or less in their savings account. Additionally, LIMRA’s research found that 40% of adults say their loved ones “would be barely” or “not at all” financially secure if the primary wage earner passed unexpectedly, and about half believe it’d be difficult to pay living expenses within six months of their primary wage earner’s passing.

Myth #5: I can’t get life insurance if I have health issues or pre-existing conditions.

Truth: Although most insurers calculate rates and coverage amounts based on your health, you may still qualify for life insurance if you have medical issues or pre-existing conditions. Some policies are designed specifically for individuals with certain health conditions, but the availability and cost of coverage may vary depending on the severity of the condition.

Life insurance providers typically require applicants to undergo a medical underwriting process, which involves reviewing the applicant’s medical history, current health status, and other risk factors. Based on this information, the insurer determines the applicant’s risk level and assigns a premium rate accordingly.

PEO: A partner to help protect your employees’ families

To make the best decision for their individual needs and circumstances, it’s essential for employees to separate fact from fiction regarding life insurance. Employers can encourage this understanding and preparedness by partnering with a PEO that offers employees education, resources, and life insurance policy options.

A PEO like ExtensisHR provides life insurance options as part of its comprehensive HR solution, but that’s just the beginning. Accessing life insurance through a PEO comes with several additional advantages:

• Cost-effectiveness: Since most PEOs partner with thousands of employers, they use group buying and underwriting power to offer higher-quality plans with lower premiums. By pooling the risk of a large group of employees, negotiating favorable rates, and providing administrative services that help reduce costs, PEOs can provide affordable options to small and mid-sized businesses (SMBs). This enables employers to access high-quality policies while managing costs and reducing administrative burdens.
• Customization: PEOs can work with life insurance carriers to tailor a policy to meet a workforce’s needs, such as the amount of coverage provided and the eligibility requirements for enrollment.
• Streamlined administration: PEOs handle the administrative tasks associated with life insurance policies, including enrollment, claims processing, and premium payments, reducing employers’ responsibilities and freeing up their time.
• Improved talent acquisition and retention: Including life insurance as part of a comprehensive benefits package can help SMBs attract and retain top talent.

Peace of mind is priceless

Misunderstandings about life insurance often keep people from securing the coverage they need. For small employers looking to raise awareness and offer high-quality policy options, partnering with a PEO like ExtensisHR can prove valuable.

Keeping your staff informed about their benefit options and how those plans may impact their families demonstrates that your organization cares about their well-being and promotes employee engagement and retention, and a PEO is there to help every step of the way.

In addition to providing a range of life insurance policy options and administrative services, ExtensisHR’s team of seasoned experts can help educate your workforce on what life insurance coverage truly means. And when questions arise, our Employee Solution Center is ready to assist your staff with plan comparisons, navigating open enrollment, and more.

Secure your team’s financial future. Explore ExtensisHR’s employee benefits services or contact us today to learn more about a partnership.