Debunking 5 Common Insurance Myths

We work day and night to try to make ends meet and get ahead. When we think about personal finance or financial freedom, we tend to think about earning money, budgeting, saving, and investing. 

But one key pillar that often gets overlooked is protecting your assets. Are we doing enough to protect our financial future and that of our families?

Because here’s the thing. One single accident, serious illness, unexpected theft, or sheer act of God could turn your life upside down if you’re not properly insured, undoing everything you've worked for. 

Studies show that many Americans either don’t buy insurance, have inadequate coverage, or are paying too much for it because of several misconceptions. 

This post talks about the top five insurance myths that stand in the way of people doing enough to protect their financial future and prepare for emergencies. 

Myth #1: I’m healthy, I’ll get health insurance when I need it

In 2023, around 25 million Americans (7.6% of the total population) had no health insurance, primarily because of the cost of coverage and the perceived lack of need for it. 

And hey, if you’re under 26, thankfully you’re covered under your parent’s health insurance plan (double check with them please). But that day eventually comes for us all when we’re on our own. Sigh.

We won’t sugar coat it - health insurance is more expensive than other types of insurance because, well, healthcare services are astronomically expensive! Individuals on average in 2023 paid about $700 per month for coverage, and families paid about $2,000 per month. And these prices keep rising, unfortunately.

Because of these costs, maybe you don’t see the need for health insurance because you’re in great health and have had no major health-related issues.. yet.  We get it - we thought we were invincible when we were younger too. 

But here’s the thing. Life happens, and we have to plan for the unexpected. Having adequate coverage, albeit at a cost, will give you a manageable bill instead of a MAJOR financial crisis. 

Don’t believe us? Treating a broken leg can cost $7,500, and only 3 days in the hospital might run you $30,000 without insurance.  

Unfortunately you can’t wait for an emergency to then decide to get health insurance, it doesn’t work that way. You can only apply for health insurance during open enrollment times or if you have a qualifying life event. It was designed this way specifically to prevent people from gaming the system. 

Tip: Prioritize finding employer-sponsored health insurance, which is by far the cheapest of all the insurance options. This is a major financial benefit you shouldn’t overlook as part of the overall compensation package. And then calculate the monthly cost into your monthly budget.

Myth #2: I don't need renters insurance 

Many renters mistakenly believe that they don't need renters insurance and that landlord insurance will suffice to cover their rental property losses. 

That’s only partly true. It is true that renter’s insurance is not required by law, but your landlord may require you to have a policy. Why? Your landlord will or should have homeowner’s insurance that covers the physical outside structure, but the inside is completely unprotected without insurance. 

For example, if someone broke into your house and stole a bunch of your stuff, you’d be screwed if you didn't have insurance. (We’ve seen that play out firsthand.) Rental insurance covers loss or damage to items IN the home due to fire, theft, vandalism, plumbing, and electrical malfunctions. 

And the good news is the renter’s insurance is AFFORDABLE. According to NerdWallet estimates, renters insurance costs about $12 per month for a hypothetical 30-year-old tenant with $30,000 in personal property coverage and $100,000 in liability coverage. 

But it also depends on the type of plan you get, which leads to our next myth.

Myth #3: All insurance policies have the same coverage 

Not all insurance coverage is the same.

Whether it’s health, car, disability, renters, homeowners or life insurance, policies can vary significantly in coverage, exclusions, benefits, and COST. It's essential to read and compare them carefully.

Typically, the more expensive the premium (or the amount you pay regularly to keep a policy active) the better the coverage. 

For example, health insurance can be obtained through your employer, the federal health insurance marketplace, or privately and typically offer PPO or HMO plans. Life insurance offers term life insurance and whole life insurance. 

Car insurance offers liability coverage, comprehensive and collision coverage, uninsured/underinsured motorist coverage, and personal injury protection. It can get weedy and technical real quick. Read about the differences here.

Here’s the only caveat. Don’t just buy a random policy just because an insurance agent called you (and, you are going to get many such calls). It’s their job to sell insurance - and most likely the most expensive policy. 

Your job is to research well, compare companies and plans, and buy a realistic plan that suits your needs and budget. The most expensive is not always the most necessary depending on your situation. 

Myth #4: Life insurance is unnecessary and expensive 

In 2023, almost half of young adults in the US had no life insurance. Many think they don’t need life insurance, which provides your beneficiary with a payout after your death, because of several misconceptions. 

First, 42% of US consumers stay away from any form of life insurance because of its allegedly high costs, according to a life insurance research study. But just how expensive are life insurance policies? 

Not as expensive as most think. Shockingly, 82% of Americans in 2023 thought the cost of life insurance was at least three times higher than it is, according to a Forbes Advisor survey. 

Only a small portion (3%) correctly guessed it costs about $20 a month! Fun fact: men’s haircuts on average will cost you more at $28 a pop! 

Some Americans also think they don’t need life insurance because they don’t have dependents. But this shows a misconception about how beneficiaries work. The truth is you can name anyone as a life insurance policy beneficiary from family members, friends, to charitable organizations. 

Someone has to reconcile and pay your bills, including funeral costs, after your death, so help them out by planning ahead for these expenses. Buying a plan now - when you are young and healthy - will cost you less than when you get older. 

Myth #5: My credit score doesn’t affect my insurance premiums 

Erg, actually it does, sorry! Especially for car and homeowners insurance. Why?

Auto insurers often use a credit-based ‘insurance score’ to help determine your premiums, which is derived from information in your credit report. In fairness, they also look at other factors, like your age, driving experience, the car model, location, and any past claims. 

But according to statistical analysis, people with a lower credit score have a greater probability of filing claims - so they are assigned a lower ‘insurance score’. 

The bottom line: The lower your insurance score, the higher is your insurance premium. 

According to Douglas Heller, Director of Insurance for the Consumer Federation of America (CFA), “The vast majority of Americans do not realize when they go shopping for insurance that their credit history is likely to have as much or more of an impact as if they have a drunk driving conviction.”

So, now you have yet another reason to build and maintain a healthy credit score. 

Despite these myths and excuses, insurance is crucial for protecting your finances and ensuring peace of mind. It’s also a complicated service that can be confusing, so uThrive is here to help you through all the intricacies.

These tips, and so much are, are just a glimpse of our all-in-one online course that turns career readiness, financial literacy, and practical life skills into real, doable steps for today’s world. In just 6 action-packed modules, you’ll learn how to pick the right career path, stick with it, and build lasting wealth. Ready to thrive? Check it out below!