Three Myths About Life Insurance - How to Dispel Them!

Life insurance is one of the most misunderstood financial tools out there. Unfortunately, misinformation—often repeated by friends, family, or even well-meaning professionals—can lead people to make poor decisions about their coverage. Let’s clear up three of the most persistent myths once and for all.

Myth #1: The “Risk of Being Overinsured”
This is something I hear from clients and, shockingly, even other financial advisors. Here’s the truth—unless you’ve been less than truthful on your application, you cannot be “overinsured.” Insurance companies simply won’t allow it.
All insurance is designed to replace losses—a burned-down house, a totaled car, a lost income. You can’t profit from insurance. For life insurance, the maximum amount you can buy is based on either a multiple of your income (often up to ~25× depending on age) or your net worth—your replacement value.
You can’t earn $25,000 a year and get approved for $10 million in coverage—it’s not going to happen. The same principle applies to disability insurance, which is why insurers require proof of income. If someone warns you about being “overinsured,” they don’t understand how life insurance actually works.

Myth #2: “Insurance Companies Don’t Pay”
Despite what some sensational ads suggest, insurers pay millions of dollars in claims every day. Paying valid claims is one of their core functions, alongside underwriting new policies and managing existing ones.
When a valid claim is filed, claims departments want it paid quickly—often within about 30 days for life insurance—so the file can be closed. Denials generally involve fraud, material misrepresentation, or an exclusion clearly outlined in the contract.
If there’s ever a dispute, policyholders have recourse, including review and legal channels. Bottom line: if your claim meets the policy terms, it gets paid.

Myth #3: “Insurers Only Want the Healthiest People”
Healthy people usually pay less, but insurers don’t only want to cover them. They aim to insure as many customers as they can price fairly.
Underwriters assess risk—health, lifestyle, and activities. Higher-risk applicants may see ratings (higher premiums) or exclusions; in some cases coverage is declined when the risk can’t be priced responsibly. That isn’t preference—it’s risk management.

The Bottom Line
Good insurance planning means making decisions based on facts, not fear. Partner with a qualified advisor to match coverage to your needs—without falling for myths that could leave you underprotected.