The definition of a myth: “A widely held but false belief or idea.”
We all have myths we believe in, and they can be enjoyable sometimes, like when reading stories of Greek mythology. The myths about the Greek gods make for fascinating reading.
There are also a lot of myths that have been passed around for years concerning insurance. For example, has anyone ever told you that your auto insurance rates automatically increase when you have an accident? Or, you can collect benefits from your disability insurance policy only if you’re totally disabled?
These are just two of the many myths about insurance that alarm people unnecessarily. Let’s look at ten common myths about different types of insurance and debunk them once and for all.
Myth #1. Red cars cost more to insure
The color of your car doesn’t affect your auto insurance premiums. Auto insurers will ask for make, model, year, and vehicle identification number (VIN) when giving you a quote or issuing you a policy, but none of that information will tell them the color of your vehicle. Unless they just hate the color red, that police officer with the radar gun isn’t looking at a car's color when they spot someone going 40 mph in a 20 mph school zone.
Myth #2. Supplemental health insurance policies don’t pay benefits if you have traditional health insurance
If an insurance policy has issued you a supplemental health policy, they must pay a claim that is covered by the policy. For example, a critical illness insurance policy that pays a $10,000 lump sum benefit for cancer treatment still has to pay you the benefit if your PPO also covers cancer treatment. A contract is a contract when it comes to insurance.
Get a free critical illness insurance quote online in seconds.
Myth #3. Personal life insurance premiums are tax-deductible
This is a common misperception. Your life insurance premiums can be deductible if you own your own small business, but not a personal life insurance policy. The IRS considers life insurance a personal expense, just like buying clothes or purchasing a new car.
[ Related: Is life insurance taxable? ]
Myth #4. It’s always advisable to buy term life insurance and invest the difference
Some insurance agents who also sell investments like mutual funds may tell you this, but it’s not necessarily true. Term life insurance is designed to meet a temporary need, like paying off a 30-year mortgage if you die while there’s a balance.
But, there are occasions when permanent life insurance is a better solution for a permanent need. For example, when you buy a burial insurance policy, you don’t know how long it will be before you need it. It could be a day, or it could be two decades or longer. Permanent insurance is also a better solution for estate tax issues because of the possibility of becoming uninsurable as you get older.
Myth #5. You don’t need an individual disability insurance policy if you have group disability available where you work
Group disability insurance usually does carry a price advantage, but the problem is that it’s not portable — meaning you can’t take it with you when you leave your employer.
This can put you at risk because some people become uninsurable when they work for someone else, such as developing diabetes or uncontrolled high blood pressure. This can lead to becoming unable to qualify for an individual disability insurance policy or having to pay a higher premium because of your medical condition.
If you think it’s possible that you might change jobs in the future or start your own business, it makes sense to have an individual disability insurance policy that you can keep permanently.
Myth #6. Disability insurance costs too much
Disability insurance is not as expensive as you think. Premiums will typically average 3%-5% of your income, which is a small expense to cover your most valuable asset: your ability to earn a paycheck. Paying $300 per month to protect a $10,000 monthly income makes more economic sense than paying $200 per month to insure a $50,000 automobile. You really can’t afford not to have disability insurance.
[ Related: How much does disability insurance cost? ]
Myth #7. If your neighbor’s tree falls on your house or fence, your neighbor has to pay for the damage
This one can be a little tricky, but generally, your homeowner's insurance pays for damage to your home — minus your deductible. So, if this happens to you, call your insurer and get your claim started.
Where it can fall into a grey area is if your neighbor’s tree was diseased or otherwise weakened, and you can document that you warned your neighbor. In that case, your insurer can help you unravel this with your neighbor and their home insurer.
Myth #8. All of your home’s contents are covered by your homeowner’s policy
If you only purchased a standard homeowner’s policy, your high-value possessions like art, wine, jewelry, etc., are probably unprotected, or at least under-protected. Most standard policies set strict limits for high-value items, sometimes as low as $200 per item.
If you have high-value items and keep them in your home, you can beef up your protection by purchasing an endorsement or policy written specifically to protect items such as these.
Myth #9. You need to meet with an agent to buy insurance
The majority of insurance is now purchased over the phone or online. When you’re working with an agent in either of these modes, you can rest assured that they’re licensed to sell insurance and are bound by the same rules and ethics that an agent you meet with in person must adhere to.
Many people find buying insurance online to be a much more pleasant experience than personally meeting with an agent. They find they get as much time and information needed to make a decision without feeling pressured.
Myth #10. There's no downside in waiting until you get older to buy insurance
It can be tempting when you’re younger to put off buying certain types of coverage that aren’t legally required, like disability or life insurance. In those early years, it seems that your expenses exceed your income every month.
Waiting until you’re older can end up being very costly and damaging to your long-term financial health. The condition of your health can change in the blink of an eye. Illnesses and injuries happen when we least expect them, and if they occur when you don’t have life or disability insurance, there is the possibility you won’t be able to qualify in the future.
The best time to buy insurance is when you’re younger and healthy.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.