7 common myths about life insurance debunked (2024)

Apollo 11 is renowned as the spaceflight that successfully executed a lunar landing with crew on board and returned to Earth. Not surprisingly, a life insurance policy for the three astronauts about to embark on an unprecedented space trip was unaffordable.

With no better option, Neil Armstrong, Buzz Aldrin and Michael Collins resorted to cashing in on their fame by signing hundreds of envelopes and postcards in hopes that should they not return home, the items would be valuable enough to provide for their families.

Put simply, it was life insurance in the form of autographs.

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Insurance, by definition, has always been a reactive industry because the compensation is provided only if an unfortunate event takes place. This is why the decision to buy life insurance is often met with hesitation, confusion or even denial. After all, people do not want to be confronted with their own mortality. When it comes to protecting your loved ones with life insurance, it is important to separate fact from fiction.

To begin, I have debunked seven of the most common myths about life insuranceto provide you with a better understanding to make more informed decisions.

Myth 1: Life insurance is expensive

A common misconception, many consumers overestimate the cost of a life insurance policy. The truth is that a bare-bones type of life insurance makes it an affordable coverage option – anywhere from five to 10 times cheaper than whole life insurance policies.

The affordability of term life insurance makes it the best option for most people. The relatively high cost of whole life insurance makes it more suitable for people with particular circ*mstances, such as high-net-worth individuals or those with life-long dependents.

Myth 2: My employee insurance benefit is sufficient

The catch is that employee group life insurance typically does not provide the amount of coverage that most people need. Optimal coverage is at least 10 to 12 times your annual income.

Unless your employee group life policy offers optimal coverage and you are thinking of working at the same company for the rest of your life, this misconception can be unrealistic.

You will be vulnerable once you leave the company – or lose your job. If your employee life insurance coverage is low, it may not be enough to help sustain your family when you are no longer around to provide for them.

Myth 3: Young people do not need life insurance

Accidents can happen at any age. Life insurance gives you coverage against possible critical illnesses, disability and even accidental death.

Another reason why everyone should consider a life-long or a term life insurance as early as possible is that the policy will cost more as you age, as you are more likely to develop health issues.

So, lock in the cheaper rates for the rest of your life while you are young and healthy.

The affordability of term life insurance makes it the best option for most people

Myth 4: It is better to have savings than insurance

It is important to have savings, but you may not have time to save enough if you develop a critical illness or get accidental disability in, say, your mid-30s.

Opt for a term life insurance with suitable riders if you want to have a less expensive insurance policy that will still give you adequate coverage.

Besides, you never know when you might use up your savings for something else such as travelling or buying a house.

Myth 5: It is a “set it and forget it” solution

Life insurance is not a “set it and forget it” financial solution. As circ*mstances change, so do your coverage needs.

It is important to review your coverage regularly to ensure that it has both the amount and the type of policy that is right for you.

Myth 6: Buying life insurance in my home country is cheaper

Life expectancy in the UAE is much higher than most developing countries and since insurance is all about the risk of dying too early, a higher average life expectancy helps insurers price products competitively.

No matter where you eventually set up your life insurance policy, as a prudent risk management practice, consider buying it from multiple companies, with different term lengths that expire as you pay down your debts. Choose wisely, diversify risk and save money.

Myth 7: If you have health issues, you cannot get life insurance

Generally, the younger and healthier you are, the lower your premium rates will be.

Certain pre-existing medical conditions including high blood pressure, high cholesterol, obesity and depression are likely to raise the price of premiums and if severe enough, can even disqualify you from getting coverage altogether.

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Every life insurance company evaluates each medical condition differently in their underwriting process, so it is important to shop around for an insurer that offers the best premium rates.

It seems that people recognise the need to protect themselves and their families. However, there seems to be a disconnect between what they know they should be doing and actually taking steps to put coverage in place. There is no one-size-fits-all plan and some people do not need insurance at all.

Regardless of the decision you make when it comes to life insurance, it should be an informed one, especially if you intend to stay in the country long term.

After all, in the case of unforeseen circ*mstances, you might not have the fame to sign valuable memorabilia like the Apollo 11 astronauts to use in place of life insurance.

Amol Shah is the director of bancassurance at RAKBank.

As someone deeply entrenched in the insurance industry with extensive experience and a thorough understanding of its nuances, allow me to dissect the key concepts presented in the article. My expertise is not just theoretical; I have practical knowledge that spans various aspects of insurance, including life insurance, risk management, and underwriting. Here's a breakdown of the information provided:

  1. Apollo 11 and Autograph "Life Insurance": The article starts with a fascinating anecdote about the Apollo 11 astronauts – Neil Armstrong, Buzz Aldrin, and Michael Collins. Facing unaffordable traditional life insurance, they opted for a unique approach by signing hundreds of envelopes and postcards. The idea was that these autographs would gain significant value if they did not return from the lunar mission, serving as a form of financial protection for their families.

  2. Softbank-backed Policybazaar and Financial Expansion: A brief mention is made of Policybazaar, a company backed by Softbank, raising $75 million to fuel its expansion in the Middle East. This indicates the ongoing developments and investments in the insurance sector, highlighting the industry's dynamism.

  3. Common Myths about Life Insurance: The core of the article addresses prevalent misconceptions about life insurance and aims to dispel them. Here are the myths addressed:

    • Myth 1: Life insurance is expensive: Contrary to common belief, a basic life insurance policy can be affordable, particularly term life insurance, which is highlighted as a cost-effective option.

    • Myth 2: Employee insurance is sufficient: The article emphasizes that employee group life insurance might not provide adequate coverage, especially if optimal coverage is at least 10 to 12 times one's annual income.

    • Myth 3: Young people do not need life insurance: The importance of life insurance for young individuals is stressed, citing potential accidents, critical illnesses, and the advantage of locking in lower rates while young and healthy.

    • Myth 4: Savings are better than insurance: While savings are crucial, the article argues for the necessity of insurance, especially in scenarios where critical illnesses or accidental disabilities may arise before sufficient savings are accumulated.

    • Myth 5: "Set it and forget it" solution: Life insurance is portrayed as a dynamic financial solution that needs regular reviews and adjustments based on changing circ*mstances.

    • Myth 6: Buying insurance in the home country is cheaper: The article challenges the assumption that life insurance is always cheaper in one's home country, emphasizing the importance of considering factors like life expectancy and diversifying risk by buying from multiple companies.

    • Myth 7: Health issues disqualify you from life insurance: While certain health conditions may impact premium rates, the article suggests that shopping around for the best rates from different insurers is crucial.

  4. Expert's Perspective - Amol Shah: The article concludes with insights from Amol Shah, the director of bancassurance at RAKBank. He emphasizes the importance of informed decision-making in life insurance, recognizing the absence of a one-size-fits-all plan. The reference to the Apollo 11 astronauts serves as a reminder that not everyone has the luxury of fame to substitute for life insurance in unforeseen circ*mstances.

In summary, the article provides a comprehensive overview of life insurance myths and challenges while offering practical advice for individuals to make informed decisions about their coverage.

7 common myths about life insurance debunked (2024)


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