Written by: Principal Financial
You probably insure your home, car, and health—maybe even your pet.
Now, how about your life and income?
It’s not particularly fun to think about what would happen if you got too sick to work, or how your family would manage without you. But it helps to put some protection in place—for their future, and your own comfort.
Typically, life and disability insurance provide that kind of protection, but both carry their fair share of misconceptions.
“It’s difficult to face your own mortality, to the extent that it can delay implementing this part of your financial plan,” says Stanley Poorman, CFP, a financial professional with Principal®. “Or maybe it just seems cumbersome to go through the underwriting process—though that’s gotten a lot easier.”
We’ve helped debunk other common myths about life and disability insurance that may be keeping you from protecting your future. Because, Poorman says, “The priority is getting the right amount of coverage in place. That’s the most important thing, because it’s about protecting the people you love.”
"The priority is getting the right amount of coverage in place ... it's about protecting the people you love.” - Stanley Poorman, CFP, a financial professional with Principal
Myth 1: Life insurance is too expensive.
Life insurance premiums seem out of your budget? Depends on what you’re comparing it to.
“You might have some competing financial priorities and that's why you keep putting off life or disability insurance,” says Poorman. “But these two types of coverage are foundational to your family’s financial security.”
Life insurance is available for nearly every need and budget. And the earlier you get it, the less expensive it is. A 35-year-old man can buy $250,000 in coverage on a 20-year term insurance policy for less than $15 per month.1 For about $120 a month, he could purchase permanent life insurance that guarantees coverage for his lifetime.2,3
“Start with an amount that fits your budget, then review and increase it each year until you get to the coverage amount that works for you,” Poorman says. Most policies also let you lock in your monthly premium so you can take advantage of lower rates when you’re younger.
Learn more: Life insurance frequently asked questions and who needs life insurance?
Tip: Filling out forms for life insurance can feel invasive, but online applications and expedited underwriting programs can make it easier (and quicker).
Myth 2: I’m young and healthy, so I don’t need to protect my income.
According to the Social Security Administration, one in four 20-year-olds will become disabled before retirement.4 “That's why disability insurance is the most important insurance for the under-50 age group,” Poorman says. “You never know when you’ll need it.”
And remember, a disability isn’t just an injury (another common misconception). It can also be an illness, such as cancer or a mental health disorder.
Disability insurance is essentially insurance for your income. While you may have coverage through your employer, there are benefits to having your own policy: Employer-sponsored disability insurance is taxable. Your individual policy is not (as long as premiums are paid with after-tax dollars). If you have 60% coverage with your employer, you may only get at a 40–50% payout. Our disability calculator can help you estimate the kind of coverage you’d need to protect what you earn.
Learn more: 5 things to know about disability insurance
Myth 3: I only need term life insurance.
There are a few different types of life insurance. Big picture: Term life insurance protects you for a limited period—it has a beginning and an end—and permanent life insurance, which typically costs more, covers you through death.
Term life insurance might make sense for young families who need a decent amount of coverage but have other financial priorities. It’s a great way to protect yourself for a period of your life.
“Term life insurance is a way to cover big expenses or debts,” Poorman says. “If I have a mortgage of $300,000, I might buy a 30-year policy to help cover my mortgage.” Available for terms of 10, 15, 20, or 30 years, rates are typically cheaper than permanent policies.
However, down the line when the kids are grown and the policy is up, you may find you still need coverage—for a spouse, end of life expenses, debt, etc.
Permanent life insurance, though typically more expensive, guarantees long-term coverage with long-term benefits.3 Plus, it builds cash value that can be used for other things (e.g., college, retirement, emergency funds, etc.).
The good news: You don’t have to decide between term and permanent insurance right away. Many term policies allow you to convert to a permanent policy later without showing you are still healthy. Talk to your financial professional to decide what will work best for you and those you love.
Learn more: Quiz: What kind of life insurance do you really need?
Related: How to Estimate Health Care and Medicare Costs in Retirement