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5 term life insurance myths that can cost you

Key takeaways

  • Life insurance is a way to help financially protect your loved ones in the event of unexpected death.
  • Falling for certain misconceptions—like life insurance is only for parents—can hurt you.

Two truths and a lie (in that order): Life insurance can be hard to talk about. Imagining worst-case scenarios is kind of a downer. It's better to sidestep an awkward conversation now and figure it out later.

Don't put it off. Find time to read up on how life insurance works and the different types of policies you can consider. Then get the facts on the most common myths about term life insurance that you need to know today.

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What is life insurance?

A life insurance policy pays your beneficiaries (a.k.a. the people you choose to receive the benefits) when you die. Typically, that comes in the form of one lump sum from the insurance company, and it's usually income tax-free.1 Insurance companies tend to make these payments within 14 to 60 days2—without the delays often associated with settling a will or estate.

Generally, life insurance plans are split into 2 categories: term and permanent. We'll cover term life insurance here, but for more information about permanent life insurance read, What you should know about life insurance.

Term insurance

Term life insurance means that the policy covers you over a set "term" or defined number of years, such as 10, 15, or 20 years.

These policies have a fixed premium (a.k.a. your monthly payment) during their term period, making them easy to budget around. After the term period ends, you can choose to continue the coverage, but the premiums increase significantly and may change every year.

People often choose term insurance because it provides a specific payout and it's much less expensive than permanent life insurance. For instance, you might select $500,000 worth of coverage to make sure your spouse has enough to pay off the mortgage if something were to happen to you. You can also time your coverage to match a particular need, such as a 20-year coverage for a child's upbringing. Once your child is no longer financially dependent, you may find you don't need as much coverage. Keep in mind, though, that after the policy term ends, you can continue your coverage, but your premiums might rise substantially.

You can purchase individual term life on your own or a group policy through your employer. Individual policies let you fine-tune the amount of coverage and the length of term, but usually require a medical checkup. That's because insurance companies want to assess your risk factors and likelihood that they'll need to make a payment to your loved ones. Group policies, on the other hand, are more "cookie cutter" and are generally set for a predetermined coverage and premium. Unless you opt for additional coverage, they rarely require a health assessment. And group policies rarely go with you if you change your job. It can be a good idea to take advantage of any group policies your employer may have, and supplement that coverage with an individual policy.

For more information read: Term insurance: What young families need to know

5 myths about term life insurance

True or false? Many common beliefs about term life insurance aren't totally accurate. If you guessed "true," you got it. The industry has been changing rapidly, and what might have been a fact 10 or even 5 years ago isn't necessarily the case today.

Myth 1: Life insurance is too expensive It may be more affordable than you think. In a recent survey by the Life Insurance Marketing and Research Association (LIMRA), 80% of people between ages 25 and 40 overestimated the cost of life insurance—with more than 50% overestimating the actual cost by 3×.3 Policy prices vary from person to person, so it's smart to shop around and see what your costs may be. The estimated yearly cost of a $500,000, 20-year term insurance policy for a healthy, non-smoking 30-year-old female is $204.4

To get a personalized estimate, check out our term quote tool.

Myth 2: I don't need life insurance until I'm older, or become a parent You also don't have to wait to apply for term life insurance until you're a parent. Your beneficiary doesn't have to be a child—it could be your partner or anyone else who relies on you. You can easily change your beneficiary if your family situation changes, and you can always list other family members.

Additionally, applying for life insurance sooner than later could save you money in premiums. That's because one factor in how much you pay—or qualifying for coverage at all—is your health. As you age, your risk for developing certain conditions increases. About 40% of those who hold life insurance policies wish they'd bought it at a younger age, according to LIMRA.5

Myth 3: It's a chore to apply for term life insurance Not anymore, it's actually easy to apply online. Online accessibility was accelerated by the pandemic, which created change by trying to eliminate or reduce the human interactions required to apply for a policy, like requiring a medical exam. In the past, you may have needed to see a doctor for a thorough health assessment and then meet with an insurance representative to sign a term life application. But now many (and sometimes all) of those steps are no longer necessary. These days, applying for term life insurance can be as easy as answering questions on your phone.

Myth 4: Life insurance offered by my employer is enough Many employers offer a life insurance policy, but the coverage may not be enough for your family. The median workplace life insurance coverage is either just a flat sum of $20,000 or one year's salary.6 Of US households that rely upon workplace life insurance coverage, 44% say their families would struggle financially in less than 6 months should a wage earner die unexpectedly.7 And this isn't to mention that if your employment situation changes you could lose your group coverage altogether. Instead of relying solely on workplace life insurance, consider it as a supplement to other coverage to help make sure your family is protected. It’s important to calculate how much coverage your family may need. One simple guideline is to aim for 10 to 12 times your annual salary and bonus, but individuals further from retirement may need more, while those closer to retirement may need less.

Myth 5: I only need life insurance if I'm working If you're not employed outside the home, it's still important to consider life insurance. Although life insurance is typically thought of as a replacement for lost income, it could also be necessary to pay for childcare and household work in your absence. If you have a partner or spouse, plan your coverage together with your family in mind to make sure you're both in the best position possible.

Bottom line on term life insurance

Term life insurance may be more affordable than you think—and offer peace of mind for your loved ones in the long run. Consider getting a term insurance quote or read more about navigating life milestones. If you're ready to dig into how term life insurance might fit into your bigger financial picture, visit our term life insurance landing zone.

Considering term life insurance?

Help protect your loved ones with term life insurance—it may be more affordable than you expect.

More to explore

Term insurance: What young families need to know

Life insurance can be key to your family's financial security. Although navigating the purchase process may sound like a heavy lift, term insurance policies might be cheaper and simpler to buy than you realize.
1. Estate taxes may apply to insurance proceeds. Consult a financial or tax advisor about your specific financial situation. 2. Amanda Shih and Nupur Gambhir, "How long does it take to get a life insurance payout?" Policygenius, April 15, 2022. 3. Stephen Wood, James T Scanlon, Maggie Leyes, "2022 Insurance Barometer Study," LIMRA, April 25, 2022. 4. Penny Gusner and Les Masterson, "Average Cost Of Life Insurance In October 2023," Forbes Advisor, September 21, 2023. 5, 6, 7. "Life insurance barometer study," LIMRA, 2022.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

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Fidelity Term Life (Policy Form Nos. ICC23 FTL POLICY and FTL-99200, et. al.) is issued by Fidelity Investments Life Insurance Company, 900 Salem Street, Smithfield, RI 02917. Fidelity Insurance Agency, Inc. is the distributor. A contract’s financial guarantees are solely the responsibility of and are subject to the claims-paying ability of the issuing insurance company.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917