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.
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 insurance to 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 circumstances, 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.
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 circumstances 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.
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 circumstances, 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.