Buying life insurance may not be an easy decision to make. Planning in case of one’s own death is not a pleasant subject. However, it is a crucial step to protect your loved ones and plan for your financial future. The better you understand it, the more informed your decision will be when you purchase a policy. The following are five myths debunked about life insurance.
A Stay-at-Home Parent Who Does Not Earn an Income Does Not Need Life Insurance
If you are a stay-at-home caregiver and don’t earn a salary, you may think you don’t need life insurance. This couldn’t be further from the truth. The value of your services in caring for children or aging parents and running a household is considerable. Your partner would need to hire help or take time away from work to replace those services. Life insurance can help cover those expenses if something should happen to you.
Beneficiaries of a Life Insurance Policy Must Pay Income Tax on the Proceeds
Life insurance benefits are generally not subject to income tax. Beneficiaries are not required to report the proceeds on their tax returns. Although your beneficiaries will not pay income tax on the death benefits they receive from your life insurance policy, interest paid on the proceeds may be taxable.
You Don’t Need Life Insurance Once the Children are Grown
Life insurance can be an important asset at various stages of life. Once your children have reached adulthood and completed their education, a life insurance policy can still provide advantages. For example, it can relieve the burden of paying for final expenses, estate taxes, or any remaining debts you may leave behind. Life insurance also provides a way to leave your children a non-taxable inheritance that does not have to go through probate.
Employer-Sponsored Life Insurance Is All You Need
Today, many employers offer group life insurance at little or no cost as part of an employee benefits package. Although this is an excellent perk, employer-sponsored life insurance has its limitations. For starters, coverage is usually insufficient. Most employers in the U.S. offer a maximum of $250,000 in coverage. Another disadvantage is losing your life insurance coverage when you leave your job. If you stay with an employer for 10 years, the cost of life insurance may be considerably higher if you decide to purchase an individual policy after you leave.
If You Are Single and Childless, You Don’t Need Life Insurance
You may not be single forever, and you may decide to start a family in the future. The best time to buy life insurance is in your 20s or 30s. You could save money in the long run if you purchase a policy while you are young and healthy, and premiums are lower. If you have student loans or other debt, you may want to consider purchasing some coverage. A family member who co-signed for you could be held legally responsible in the event of your death.
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