Advisors' Corner

Six Common Life Insurance Myths

1: My student loans will be forgiven if I pass away.

Fact: To keep it simple, it depends on the type of student loans you have. Federal student loan debt is forgiven upon death or total disability, and family members are not responsible for it. In this case, a life insurance payout could go to other things such as living expenses or funeral costs.

Private student loan debt can be different and is not as cut and dry. You’ll need to ask your lender if they provide student loan death forgiveness, which will give you a better estimate of how much life insurance coverage you need.

2: My beneficiaries will have to pay income taxes on the proceeds from my policy.

Fact: Life insurance benefits are generally income tax-free up to a certain threshold.₁ However, any interest payments on top of the policy may be taxed.

3: I won’t need life insurance once my children are grown.

Fact: Having life insurance later in life has many advantages, like relieving the burden of funeral costs, paying state estate taxes, paying off your debt, or simply giving your children a nest egg which they can use to help support their own families.

4: I have savings, so I don’t need life insurance.

Fact: The national median cost of a funeral with a burial is $7,300.₂ Your savings were likely for retirement, so your loved ones may have to pay for your funeral costs if there is not enough left over. Additionally, if you have any debts, your estate will use your savings to pay for those, which could reduce the amount left for your beneficiaries.

5: I don't earn income, so I don’t need life insurance.

Fact: If you’re a stay-at-home parent, you don’t bring in an actual paycheck, but you likely provide services that could cost a lot of money to replace, such as childcare, daily transportation, and more. Life insurance benefits can help replace some of these costs.

6: Life insurance doesn't cover death by suicide.

Fact: Life insurance actually does often cover a policyholder’s death by suicide in many cases. However, life insurance policies frequently include contestability and suicide clauses, which must expire before the benefit is paid out. This period is usually two to three years, but beneficiaries may receive the death benefit once the clauses expire.

Deciding which life insurance policy to purchase or even deciding to get life insurance at all can feel overwhelming. If you need help determining how much you need, what type, and for how long feel free to reach out to our fiduciary advisors for objective financial advice.

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1 Internal Revenue Service  2 National Funeral Directors Association

This content is for informational purposes only and is not to be considered advice or a recommendation of any specific investment product or strategy. Views and opinions are subject to change at any time based on market and other conditions. Before acting on any information in the content of this article, you should seek the personalized advice of legal, tax, or investment professionals. Life insurance facts and statistics 2022, 30, Dec. 2021, bankrate.com.