Why Everything You Think You Know About Life Insurance Is Wrong
Life insurance: as you yawn, roll your eyes and think to yourself that there couldn't possibly be anything less interesting to read— we acknowledge your lack of enthusiasm.
After all, life insurance is something that many people, especially healthy and young professionals, put off or don't consider at all. Perhaps it's due to a sense of invincibility, or maybe a notion that life insurance is for our parents.
But whether you're single, married with kids, or just thinking about buying a home or starting a family, the very real benefits of life insurance should outweigh your reluctance.
Case in point: Only 4 in 10 people surveyed for Life Happens' 2015 Insurance Barometer Study feel they have sufficient life insurance coverage. Cost is the primary reason, according to the study. Yet 80% of respondents overestimated the true cost for term life insurance, with those under 25 over-estimating the cost of a 20-year, $250,000 term policy for a 30-year-old by a whopping 375%.
Because we care about your financial health and know that life insurance should be a critical part of your overall financial plan, we sat down with Marcos Fernandez, a SoFi Product Marketing Manager, to debunk the top five life insurance myths.
And pssst... in case you didn't hear, we've collaborated with Ladder to offer our members term life insurance built from the ground to be instant, simple, and smart. It’s never been easier to determine your needs and apply online for instant coverage at reasonable rates.
Myth #1: Life insurance is for older people. Actually, it's smarter to buy life insurance when you're young. “Typically, youth and excellent health go hand in hand," says Fernandez. "Since most health-related issues tend to develop later in life, a young person can expect to pay a lot less in life insurance premiums before chronic conditions take hold."
If you take out a 10-, 20-, or 30-year policy at a young age, you'll have the opportunity to lock in a good rate that won't change over time. So, go ahead and run another mile or take another spin class; your body and your budget will thank you.
Myth #2: Employer coverage is adequate. According to the MetLife Employee Benefit Trends Study, 62% of American workers surveyed look to their employer benefits to help gain financial security. But most group term policies are grossly inadequate. "Many employer-based term-life policies are valued at around one to two times the employee's salary," says Fernandez. "Yet, the industry recommends life insurance coverage of 7 to 10 times annual pay."
Additionally, if you leave your job, your policy will be canceled, unless you convert it to an individual policy, which would mean paying the full monthly premium out of pocket. But according to the MetLife study, only 44% of employers offer "portable benefits" to their workers.
So, when choosing the coverage amount, consider the bigger employment and financial picture. "Ask yourself the all-important questions," says Fernandez. "How many years of income replacement will your family need? Do you plan to help your children with their future college tuition? What are your current available funds, including savings and investments outside of 401(k)s and IRAs? Then, use this simple calculator to determine your coverage needs based on your answers."
Myth #3: Plan options are complicated. Sometimes insurance-speak, like legalese, can be intimidating. But don't get turned off, because with life insurance, there's one guiding principle: If you need it, make sure you buy enough of it.
There are two main types of life insurance: term life and whole life. Term life covers you for a specific period of time, often 10 to 30 years. It's designed to pay out a benefit to your beneficiaries if you suddenly pass away, and it's an affordable option. On the other hand, as long as you pay your premiums on time, whole life can provide lifelong coverage and includes an investment component—the policy’s cash value. The cash value grows over time, and you generally don’t pay any taxes on the gains as they accumulate. While the premium for whole life is typically higher than term life, the death benefit and the rate at which cash values grow is guaranteed, as long as your policy is active.
Myth #4: Monthly premiums can get pricey. While the cost of premiums depends on a number of factors, including your age, gender, lifestyle choices, and family medical history, rates for term-life insurance are relatively low and quite competitive. For example, a 30-year-old male in excellent health and living in California can purchase a 10 year, $500,000 term-life policy for under $17 per month, and this monthly premium stays the same for the entire 10-year coverage period selected. Best of all he may be able to apply online for his policy in just about 5 minutes, potentially with no medical test.
Myth #5: The application process is mind-numbing. The days of door-to-door insurance salesmen and their long-winded pitches and fear tactics are gone. “Thanks to advancements in technology, researching and applying for life insurance online is now very convenient,” says Fernandez. “SoFi has partnered with Ladder to give you access to low rates, 10-, 20-, and 30-year terms, and coverage up to $8 million—in some cases without a medical test*. And you don’t have to wait months to find out if you’re eligible."
If you're thinking of buying a home, marrying, or starting a family, now should be the time to reevaluate life insurance options and discuss your findings with your loved ones. After all, it's never too early to start thinking about how to protect your assets and your family's future. And while no one life insurance solution works for everyone, SoFi's online tools and reps can help you find the right life insurance fit for you and your loved ones.
Best of all, we promise to make it simple and painless. SoFi members can get a free insurance quote and apply for instant coverage in about 5 minutes online.
* Coverage amounts range from $100k up to $8 million. Instant coverage may be available to applicants that meet certain risk and eligibility requirements. A medical test may be required for applicants that do not meet these eligibility criteria.
Neither Ladder nor SoFi offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making any tax-related decisions.Ladder policies are issued in New York by Allianz Life Insurance Company of New York, New York, NY (Policy form # MN-26) and in all other states and DC by Allianz Life Insurance Company of North America, Minneapolis, MN (Policy form # ICC20P-AZ100 and # P-AZ100). Only Allianz Life Insurance Company of New York is authorized to offer life insurance in the state of New York. Coverage and pricing is subject to eligibility and underwriting criteria. SoFi Agency and its affiliates do not guarantee the services of any insurance company. The California license number for SoFi Agency is 0L13077 and for Ladder is OK22568. Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other. Social Finance, Inc. (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderLifeTM policies. SoFi is compensated by Ladder for each issued term life policy. SoFi offers customers the opportunity to reach Ladder Insurance Services, LLC to obtain information about estate planning documents such as wills. Social Finance, Inc. (“SoFi”) will be paid a marketing fee by Ladder when customers make a purchase through this link. All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.