Life insurance myths debunked: 4 common misconceptions

When I say, “life insurance,” what immediately comes to mind? If you’re like most people, you’ll probably conjure up a confusing, time-consuming process that leads to expensive monthly premiums.

The digital transformation of life insurance has revolutionized the industry. However, customers no longer need to tolerate negative experiences while obtaining these policies. In addition, what used to be common knowledge about life insurance has now become harmful myths. Here, I debunk them.

Myth #1: Life insurance is only for the elderly

When I was the mother of a young family, my husband and I put off purchasing life insurance. The misconception that life insurance is only for the elderly was part of the reason. We were young — we didn’t imagine we would ever need it.

When my husband died after a tragic accident, I was left with only a $10k policy through my employer that didn’t even begin to cover my family’s expenses. My husband had been our children’s main caretaker, while I provided our income. Securing childcare after his demise cost more than double my rent each month.

Accidents and emergencies can happen to anyone, which means everyone needs the protection life insurance provides. I learned that the hard way.

Myth #2: Life insurance is complicated

I understand how hard it used to be to get life insurance. As my children’s remaining parent, I knew I needed to obtain life insurance on myself, no matter how onerous and irritating the process might be. I endured numerous conversations with insurance providers’ representatives, answering questions that delved into trivia from far in the past. I also submitted to blood and urine testing. It took 21 days for me to get that life insurance policy.

Even at the time, I thought this process was unacceptable. Today, people tend to be busier than ever. It’s too much to ask people to jump through all of these hoops and wait for weeks before receiving an offer.

Luckily, advanced technology has opened up a better way. Artificial intelligence and machine learning algorithms can accurately assess and deliver a personalized offer in only five minutes. People answer a basic set of questions online and instantly get a provisional quote for a life insurance policy. There are no follow-up questions to bog the process down.

Myth #3: Life insurance is too expensive

I also understand why many people believe life insurance policies are too expensive. When I went through my own process of securing life insurance after the death of my husband, the company’s representative told me I needed a million dollars worth of coverage. The premiums were going to be much too high. I just couldn’t afford it.

Again, times have changed for the better. Today’s AI-based systems enable consumers to indicate how much they can afford to spend on life insurance. For example, a platform can immediately crunch the numbers and provide options that would conform with their budget. This has the advantage of providing people with cost-effective choices and allowing them to select what they feel most comfortable with.

Even a little life insurance is better than none at all. People shouldn’t have to forego life insurance entirely just because they can’t afford the monthly premiums for the ideal package.

Myth #4: Life insurance payouts are taxable

If you thought you would need to pay taxes on payouts from a life insurance policy, rest assured — this is also a myth. Funds released through these policies are usually not considered income, so they are not subject to taxation. Instead, they are considered death benefits, free from tax consequences.

Money gained through the payout of a life insurance policy is only taxable in certain rare circumstances. If the policyholder sells it to an investor before their death, they will need to report the sale and pay any appropriate capital gains taxes. This is known as a life settlement transaction.

Some life insurance policies result in an accumulation of cash that the holder can choose to withdraw. Taxes also apply to these capital gains. It’s important to note that this is different from a death benefit.

Another scenario in which life insurance payouts could be taxable occurs if the policy is part of a trust, and that trust itself is taxed. In these cases, it’s usually best to confer with a tax professional to understand how the payout would be impacted.

For the vast majority of people, however, life insurance payouts are not taxed. 

Getting life insurance is now fast, simple, and easy

I know from first-hand experience how important life insurance is. Obtaining it used to be a lengthy and convoluted process, but that is no longer true. Due to advances in technology and the availability of data, people can now apply for life insurance and get an offer they can afford, quickly.