Get paid up to $18,750 for your referral to ExtensisHR!   Start Referral Close

5 Common Life Insurance Myths and Misconceptions

Quick look: Life insurance is a critical tool that can provide peace of mind and financial security. Despite its importance, many people overlook or underestimate its value, leaving themselves and their families vulnerable to hardship in the event of an unexpected passing. Here’s a look at common life insurance myths, why purchasing coverage is so essential, and how a PEO can make policies more affordable for small- and medium-sized businesses.

Life insurance is a vital 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, there are numerous misconceptions about its importance that stop employees from seeking coverage.

Yet, life insurance is so significant that it’s honored 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 agents to educate the public about the benefits of life insurance, the different types of policies available, and the factors to consider when choosing coverage.

Life insurance usage at a glance

Before delving into 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. According to recent research from the trade association LIMRA:

  • In January 2023, 52% of consumers reported owning a policy (up from 50% in 2022 but down from 63% in 2011).
  • More than 100 million uninsured and underinsured Americans claim they need (or need more) coverage.
  • 21% of policy owners believe they don’t have enough coverage.
  • 38% of Americans say their household would face financial hardship within six months of a wage earner’s unexpected death, and 30% would struggle financially within one month.
  • The top three reasons people purchase life insurance are to cover burial and other final expenses (60%), to transfer wealth or leave an inheritance (38%), and because it is employer-provided (33%).

5 common life insurance myths

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

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

This common misconception often leads to young adults foregoing life insurance coverage until they have families. However, life insurance rates are often lower for younger and healthier individuals, and getting coverage earlier in life can ensure that you are protected in case of an unexpected event.

Myth 2: Life insurance is too expensive

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. This is also an area where working with a professional employer organization (PEO) can be extremely beneficial. By pooling the risk of a large group of employees, a PEO negotiates lower premiums with insurance providers, making life insurance more affordable for SMBs and their employees.

PEOs also provide administrative services that help reduce costs associated with insurance, such as enrollment, claims processing, and premium payments. By handling these tasks, the PEO reduces the administrative burden on SMBs, which can translate into cost savings.

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

Yes, having dependents is one reason to consider life insurance. But there are other scenarios where it can be beneficial, such as 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 a lot of expenses the family will have to pay for, and life insurance can help ease the financial burden.

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

While having savings and investments are important, life insurance can provide an additional layer of financial protection. Unfortunately, according to a recent survey by GOBankingRates, 33% of Americans have $100 or less in their savings account going into 2023, and 34% had the same amount in their savings in 2022. 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 5: You can’t get life insurance if you have health issues or pre-existing conditions

Although most insurers use your health to calculate rates and coverage amounts, it’s possible to get life insurance if you have health issues or pre-existing conditions. And some policies are actually 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 will 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 right protection with a PEO

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 education, resources, and of course—life insurance options to employees.

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

  • Cost-effectiveness: Since most PEOs partner with thousands of employers, they use that 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 SMBs. This allows employers to provide their employees with access to quality policies, while also managing costs and reducing administrative burdens.
  • Customizable: PEOs can work with providers to tailor the life insurance policy to meet the unique needs of SMBs and their employees, such as the amount of coverage provided and the eligibility requirements for enrollment.
  • Streamlined administration: PEOs handle the administrative tasks associated with the life insurance policy, such as enrollment, claims processing, and premium payments, reducing the burden on the employer.
  • Attractive benefits package: Offering life insurance as part of a comprehensive benefits package can help small and medium-sized businesses attract and retain top talent.

Peace of mind is priceless

The life insurance myths mentioned here may deter many people from seeking out and obtaining coverage. If you’re a small employer that offers life insurance or are thinking about offering life insurance, consider a PEO. In addition to providing different life insurance options, a PEO has HR experts and resources to help educate your workforce.

Making sure your employees are fully informed about their benefits and how they impact themselves and their families should be a top priority. Your workforce will thank you for it!

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

Our expert advice, direct to your inbox.