Getting Past The Myths About Life Insurance

Eufemia Didonato

CEO and Co-Founder of Ethos, which helps families get simple and ethical life insurance. getty Life insurance, at its core, is about protecting people who are vulnerable. As the events of this year have shown us all too well, that includes each and every one of us. It’s more important than […]

CEO and Co-Founder of Ethos, which helps families get simple and ethical life insurance.

Life insurance, at its core, is about protecting people who are vulnerable. As the events of this year have shown us all too well, that includes each and every one of us. It’s more important than ever that people understand not only what life insurance does, but what it can do. According to our company’s 2020 Financial Legacy Index, conducted by The Harris Poll, with regard to life insurance 42% of respondents don’t know that a deceased loved one’s assets can’t be liquidated until debts are paid off, while an additional 36% of Americans don’t know that when someone passes away, their loved ones could be responsible for paying off their debt. Many people might not even be aware of what any of this has to do with life insurance.

It’s not necessarily a question of awareness of life insurance; it’s more about the misconceptions concerning how it works and the financial security it can provide, which often leads to inaction. Let’s see how we can help clear up these misconceptions.

Building Trust

Some of the problems that have fueled the general misconceptions around life insurance stem partially from the industry’s general lack of innovation, but also because traditionally, life insurance has been something sold to someone, not something people have actively sought out to buy. The typical sales pitch is more concerned with getting your signature on the dotted line, and not with whether you’re grasping the full picture of how life insurance can work for you. A 2019 survey conducted by the Geneva Association found that less than 25% of the 7,000 participants from around the world who participated had a positive opinion of the insurance industry in general.

The problem is that our own findings also show Americans have more ways to talk themselves out of life insurance than they have ways of convincing themselves it’s a critical tool that can help protect their family. When you look at the common refrains around life insurance, it becomes clear how much clarification work needs to be done.

Although a large majority know they need it in some form, 28% believe they do not. Some people believe the insurance they are provided through their employer is enough, though it often is not. At the other end of this spectrum are those who believe they can’t afford it; here it’s important to note, though, that life insurance becomes more expensive as you age. So the earlier a person buys it, the more affordable it will be.

The numbers reveal a big gap in financial literacy, with 38% of people unsure how life insurance can help them financially and 43% unsure how retirement savings accounts like 401(k) plans work. Owning life insurance can help not only build wealth, but it can help to protect wealth, as well. Having life insurance in place to cover financial emergencies, such as the death of a breadwinner, protects any wealth that has been accumulated from being used to recover from the loss of that breadwinner. For example, having a term life insurance policy in place while a mortgage is being paid off can protect other assets if the insured passes unexpectedly.

Finally, there’s the general feeling that life insurance is a “scam.” Research has found that consumers feel intimidated by the life insurance application process. Trust is earned, and by showing how life insurance is a tool for financial strength rather than a nebulous cache of money for “some day” will go a long way toward building a partnership between the life insurance provider and the customer — one built on trust and understanding.

More Work To Do

There is work to be done. A 63% majority of Americans surveyed have not invested their money, 61% have not taken out a life insurance policy and only 30% can say they have a plan for paying off their debt.

Now is a time to heavily reflect, but especially when it comes to the big picture of your ambitions and potential legacy. The best way to overcome inaction is by taking the first step: getting a full picture of your finances and determining which components of building a financial legacy make sense to you, such as creating a plan to tackle debt, opening a retirement savings account or considering how life insurance can fit into your financial arsenal.

And in turn, the life insurance industry needs to make information more transparent and accessible to everyone. Through ethical, customer-first practices that work with people throughout their life and help them through every stage — no matter what their financial situation or life’s goals — the industry can repair some of these misconceptions and break free of over a century of doing things one way and one way only.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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