5 Common Life Insurance Myths and Misconceptions

Quick look: Life insurance provides peace of mind and financial security. Despite its importance, many people overlook or underestimate its value, leaving their loved ones vulnerable to hardship in the event of their unexpected passing. Here’s a look at common life insurance myths, why purchasing coverage is so essential, and how a professional employer organization (PEO) can make policies more affordable for small businesses.

Life insurance is a critical part of financial planning that can help protect loved ones in the event of an unexpected passing. While many people don’t like thinking about life insurance because of what it entails, not fully understanding its importance can be a costly mistake. Perhaps due to the topic or the vast amount of information that comes with it, many misconceptions sometimes stop employees from seeking coverage.

However, life insurance is so significant that it’s acknowledged two times per year as a reminder of its role in protecting our families’ economic future and as a tribute to those who have lost their lives. National Life Insurance Day occurs on May 2, and September is Life Insurance Awareness Month, creating two annual opportunities for insurance companies, financial advisors, and brokers to educate the public about the benefits of life insurance, the different policy types available, and factors to consider when choosing coverage.

Life insurance facts at a glance

Before discussing the misconceptions surrounding life insurance, it’s important to understand who has coverage, how much of it they have, why they purchased it, and who still needs a policy. Trade association LIMRA’s 2024 Insurance Barometer Study found that:

• The top three reasons for not owning life insurance are that people think it’s too expensive, have other financial priorities, or are unsure what they need/what type to purchase.
• 54% of those surveyed based their life insurance cost estimate on a “gut instinct” or “wild guess,” signaling an opportunity for employers to educate staff on actual costs.
• For the second year in a row, Millennials showed the most overall financial concern, likely due to many forming families, advancing in their careers, and focusing more on retirement planning.
• 42% of U.S. adults say they need (or need more) life insurance coverage, a two-point increase from 2021.
• Women are 11% less likely to say they have life insurance, and 54 million report they need (or need more) coverage.

5 life insurance myths debunked

Whether your employees are young professionals or nearing retirement, understanding the importance of life insurance is critical for securing their financial well-being. However, several common life insurance myths persist despite being fictitious. Here’s a look at five of the most prevalent misconceptions and why they couldn’t be further from the truth.

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

Truth: This common misconception often leads young adults to forego purchasing life insurance coverage until they have families or are older. However, life insurance rates are usually lower for younger and healthier individuals, and securing coverage earlier in life can ensure that you are protected in case of an unexpected event.

Myth: Life insurance is too expensive.

Truth: According to the LIMRA research, the top reason for not purchasing coverage is that it’s too expensive. However, while some types of life insurance can be costly, many affordable options are available, including term life insurance policies. In fact, the LIMRA study found that 78% of those surveyed overestimated the true cost of a basic term life insurance policy.

Working with a professional employer organization (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 costs associated with insurance, such as enrollment, claims processing, and premium payments. By handling these tasks, the PEO reduces the employer’s administrative burden, which can translate into cost savings.

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

Truth: Having dependents is one reason to consider life insurance, but there are other scenarios where it can be beneficial. 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 off if something were to happen to you. In the event of a person’s passing, there are many expenses the family will have to pay, and life insurance can help ease the financial burden.

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

Truth: While savings and investments are important, life insurance can provide additional financial protection. Unfortunately, according to a recent survey by GOBankingRates, 36% of Americans have $100 or less in their savings account. Life insurance can help ensure that your family has the financial resources they need to maintain their standard of living and cover expenses like funeral costs and outstanding debts.

Myth: 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 get life insurance if you have medical issues or pre-existing conditions. Moreover, some policies are built specifically for people with certain health conditions. However, the availability and cost of coverage may vary depending on the severity of your condition.

Life insurance companies 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 will determine the applicant’s risk level and assign a premium rate accordingly.

The perks of partnering with a PEO to protect your employees’ families

It’s important to separate fact from fiction regarding life insurance and make an informed decision based on individual needs and circumstances. Partnering with a PEO can give small employers an upper hand in debunking these myths by providing employees with education, resources, and life insurance policy options.

A PEO like ExtensisHR offers life insurance options as part of its comprehensive HR solution. Here are several benefits of offering life insurance through a PEO:

• 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 with providers, and providing administrative services that help reduce costs, PEOs can offer affordable options to small- and medium-sized businesses (SMBs). This enables employers to provide their employees access to quality policies while managing costs and reducing administrative burdens.
• Customization: PEOs can work with life insurance providers to tailor the policy to meet an individual workforce’s unique 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: Offering life insurance as part of a comprehensive benefits package can help SMBs attract and retain top talent.

Peace of mind is priceless

Myths about life insurance deter many people from seeking and obtaining coverage. If you’re a small employer that offers life insurance or are considering offering it, partnering with a PEO like ExtensisHR can prove valuable.

Keeping your staff informed about their benefit options and how those plans may affect their families shows them 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 multiple life insurance policy options and administrative services, ExtensisHR’s team of seasoned experts can help educate your workforce on what life insurance coverage truly entails.

Looking to learn more about offering life insurance coverage to your employees? Contact ExtensisHR’s benefits experts today to get started.