5 Common Life Insurance Myths Debunked

Quick look: Life insurance can be an important part of an employee’s financial safety net, but misconceptions about cost and who needs coverage can stand in the way. This blog breaks down five common life insurance myths, shares the latest coverage statistics, and explains how a professional employer organization (PEO) can help small businesses close the gap and make life insurance more accessible to their employees.

Life insurance is one of those benefits people hope stays untouched, but knowing it’s there means a family’s finances and long-term stability aren’t left to chance. Even so, plenty of misconceptions keep people from purchasing life insurance because they may assume it’s too expensive, they’re too young to need it, or they won’t qualify because of their health.

September is Life Insurance Awareness Month, a nationwide effort to “educate consumers about life insurance and its role in protecting financial security. In the spirit of the occasion, let’s walk through where coverage stands today, clear up five persistent myths about life insurance, and consider how small and mid-sized businesses (SMBs) can offer this benefit to their workforce through a PEO.

Where life insurance coverage stands today

Before diving into the myths, it helps to understand the current state of life insurance in the U.S. Who has coverage? How much protection do they carry? And what’s driving (or holding back) their decision to buy?

The American Council of Life Insurance (ACLI) 2025 Fact Book reports that:

• 90 million American families depend on life insurance for financial and retirement security
• Group life insurance, including employer-sponsored plans, provided $7.8 trillion of protection at year-end 2024
• 9.6 million individual policies were purchased in 2024 alone
• The average new individual life policy has increased from $168,000 in 2014 to $209,000 in 2024

LIMRA’s 2026 Insurance Barometer Study adds more context:

• 28% of American adults say they need life insurance, or more of it than they currently have
• Policy sales increased 7% in 2025, with new annualized premiums reaching $17.5 billion
• When asked what matters most in a policy, respondents said:
  • Coverage of funeral, burial, and cremation costs (55%)
  • Supplementing retirement income (50%)
  • Flexibility to change coverages like long-term care services or critical illness benefits (50%)
  • Room to adjust a policy multiple times as life circumstances change (49%)
  • Penalty-free access to funds in an emergency (47%)

The numbers point to an ongoing need for coverage, but misconceptions can make it harder for employees to determine what’s right for them.

5 common life insurance misconceptions and their truths

Every employee stands to benefit from understanding life insurance, whether they’re just starting their career or getting closer to retirement.

Here are five common myths worth clearing up.

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

Truth: This mindset is common and often leads people to put off coverage until marriage or another milestone. However, premiums tend to be lower for younger, healthier applicants, so locking in coverage sooner rather than later typically pays off. And in the case that the unexpected happens, loved ones will be able to address debts, final expenses, or other financial obligations while protecting their own financial well-being.

Myth #2: Life insurance is too expensive.

Truth: LIMRA research shows that many people vastly overestimate what a policy actually costs. While certain types of coverage can be expensive and vary depending on the type of policy and an individual’s circumstances, plenty of affordable options exist, such as term life insurance.

Working with a PEO can help employers offer competitively priced policies to their staff. By grouping employees from many client companies together, a PEO has the leverage to negotiate lower premiums than a small business could get on its own, making coverage more attainable for everyone involved.

PEOs also provide benefits administration services like enrollment, claims processing, and premium payments, which can trim down hidden costs tied to running a benefits program in-house. By handing off these tasks, business leaders can free up more time and budget.

Myth #3: I only need coverage if I have dependents.

Truth: Dependents are a good reason to carry life insurance, but they’re not the only one. 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. Passing away brings a surprising number of expenses with it, and life insurance helps ease the financial burden for families of all kinds.

Myth #4: My savings account can cover what life insurance would.

Truth: Savings and life insurance serve different purposes.

Building an emergency fund and saving for the future are important parts of financial planning. But savings may not be enough to replace a household’s income or cover major expenses following an unexpected death.

Fewer than half of U.S. adults have enough emergency savings to cover three months of expenses, and LIMRA research found that 40% of adults say their loved ones would be barely or not at all financially secure if the primary earner passed unexpectedly.

Myth #5: My health issues mean I won’t qualify.

Truth: Health does factor into rates and coverage amounts, but a pre-existing condition doesn’t automatically rule someone out. Certain policies are even built specifically for people managing health issues, though what’s available and what it costs may vary based on how serious the condition is.

Before setting a rate, life insurance providers generally require a medical underwriting process, which involves reviewing an applicant’s history, current health, and other risk factors. This process is more nuanced than some people think, and it doesn’t close the door to coverage the way many think it does.

How a PEO makes life insurance more accessible

Helping employees sort fact from fiction is one of the most important things an employer can do, and working with a PEO makes that education, along with the coverage itself, much easier to deliver.

ExtensisHR, for example, provides life insurance options as part of its comprehensive HR solution, but that’s just the beginning. Here’s what businesses gain by accessing coverage through a PEO:

• Cost-effectiveness: PEOs often work with thousands of clients at once, giving them the buying power to secure better plans at lower premiums. That pooled risk, along with negotiated rates and administrative support, helps SMBs attain higher-quality coverage without the extra overhead.
• Flexibility: PEOs can work alongside carriers to shape a policy to meet a workforce’s needs, such as the amount of coverage provided and the eligibility requirements for enrollment.
• Streamlined administration: Enrollment, claims, and premium payments all get handled by the PEO, reducing the workload on internal teams.
• Stronger recruiting and retention: A well-rounded benefits package that includes life insurance gives small businesses a leg up in attracting and keeping talent.
• Employee support: Employees can have a resource to turn to when they have questions about their benefits or coverage.

Coverage brings peace of mind

Life insurance may not be the first benefit employees think about when evaluating a job, but it can play an important role in protecting their financial future.

Clearing up misconceptions is a good place to start. Employers can also help by making coverage easier to access and providing employees with the resources they need to understand their options.

A PEO like ExtensisHR can support that process with benefits administration and employee assistance throughout the year. Our Employee Solution Center gives employees a place to turn when questions come up, whether they need help comparing plans or navigating open enrollment.

When employees have access to the right information, they can make decisions that better support themselves and their families.