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Ask the expert: Here are the 3 biggest life insurance mistakes people make

Many Americans may think life insurance is only for family breadwinners with young children. But that's one of several big misconceptions that people have about this kind of coverage, according to Ebony Ruffin, founder of Ruffin Consulting Services, a business consulting firm providing life insurance solutions to families and businesses.

Janna Herron connected with Ruffin to break down the most common mistakes people make when it comes to life insurance as part of Cashay's Ask the Expert series that seeks advice from experts on vexing personal finance topics surrounding all of life’s milestones. 

This is the third of three articles with Ruffin on life insurance. You can read more of her advice here and here.

[Interview has been edited for clarity and length.]

Shot of stressed business woman working from home on laptop looking worried, tired and overwhelmed.
(Photo: Getty Creative)

What are some of the biggest mistakes do you think people make when it comes to life insurance?

Oh, great question. The biggest mistakes I often see when speaking about life insurance and working with clients is the assumption that they cannot incorporate life insurance into their budget. So oftentimes most people are reluctant to pursue life insurance outside of an employer, or just to get life insurance at all because they have taught themselves that they can not afford life insurance.

What's your advice on this?

I always say the first step is to get a quote, get it in your hands. Look at it. When you have real numbers in front of you, it eases some of the stress of affordability with life insurance. 

What's another common life insurance mistake?

Another big misconception about life insurance is for parents who are the caregivers of the children in the household that may not be gainfully employed. They assume that they do need life insurance. And actually this is where I try to convey the message of understanding your value and worth in your household.   

Because if something happened to you as the caregiver in the household, while the other spouse is working, then that spouse now has to find someone to provide childcare, to prepare meals, to do homework. Everything that the person in the household is doing adds great value to the home. And if that person passes away, you, the surviving spouse, now will need money to find someone to do those things. 

What's your advice on this?

(Credit: Ebony Ruffin)
(Credit: Ebony Ruffin)

So I always try to encourage a stay-at-home parents to just jot down on a list of how do they contribute to their household and what will happen if they passed away. Will someone have to be hired to perform those activities? And that helps them better understand why they do need life insurance as well. 

Any other mistakes you see?

Another big is another big misconception is I'm young. I'm single. I'm not about to die anytime soon. Why would I want to take any money out of my budget and spend it on life insurance? And from a personal testimony, when I was preparing to go off to undergrad, one of the decisions that my mom made for me was to get life insurance for me. And at that time I said, "I don't understand this," but she's pretty savvy and smart when it comes to finances. And what I understood later in life is my mom was making a very smart decision. If something happened to me when I was off at college, how would my parents take care of my burial expenses and anything that was a result of me no longer being on this earth? 

The other side to that is my mom actually got a permanent life insurance policy for me. And so now I have this cash value account that's growing, which is great for me, because if I decide that I would like to withdraw that money from the cash value account and use it as a down payment for a home or an investment property, or even have it as capital to pursue a business idea, I have access to those funds. They're pretty liquid for me now because I've had the policy 10 years now, if not longer.

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