Death: The Only Reason For Life Insurance

Death: The Only Reason For Life Insurance

Death: The Only Reason For Life Insurance

This post is part of the Life Insurance Movement put on by Jeff Rose at Good Financial Cents. This movement is part of a large campaign to help raise awareness about the importance of life insurance. If you want more information about this movement,  just click the links above. Thank you for reading.

There is one personal finance topic that may be too personal. It’s the topic no one wants to write about because reading about it leaves you feeling down. That topic is death. Death is the one thing we all have in common. No matter how much time we spend reading about all the ways to ensure you have a healthy financial future, you can’t have a full-proof plan until you address the inevitable.

Why Do You Need Life Insurance?

Unfortunately, the best way I can explain this is to tell you about those who did not have life insurance.

Story 1:

Today, I was sent a Facebook invitation to help a family in need. They have a wonderful story, filled with hardship, but also with great joy. A husband and wife had a heart for foster children, and went through the process of taking in twins who had been put through the foster system and placed with horrible, abusive caretakers the previous two times. This time, they were put with a caring family who would do whatever it took to give these kids a permanent home. The kids had a very difficult time adjusting, but after a few years of relentless pursuit, the parents loving them as their own, the kids finally felt part of a family for the first time. They were adopted into the family, a family that was now theirs forever.

A few months later, the husband went to the doctor because of some alarming symptoms, and it was found out that he had a terminal brain tumor that was inoperable. Within a year, he died, leaving his wife and two newly adopted children behind. As sad as this story is, what is more heartbreaking is that they spent all their savings fighting the cancer, and were left with no other money. There was no life insurance policy in place to cover the cost of his wife having to raise two children on her own with no income. They have set up a donation page (which is the best way to help a family in this position), I only wish this story could have had the financial burden lifted with a life insurance policy, but sadly, this is not the case.

Story 2:

Dad and Me

When I was 5 years old, my father passed away from melanoma skin cancer. He was only 31 years old. By the time they found the cancer, it was already stage 5, meaning it had metastasized, entered his blood stream and was planting itself all over his body. His terminal cancer diagnosis put our family in a whirlwind, especially my mother. She had 3 kids under age 8 and her husband, the main breadwinner in the family, was about to die.

Luckily, my father was a life insurance salesman who knew the value of getting a good term life policy in case something devastating should happen. Unfortunately, he also underestimated when he would leave this earth, and only signed up for a $75,000 policy. My mother was able to pay for medical bills and the funeral with the money, and didn’t have much left to live on. As I’ve mentioned before, the doctor’s made a mistake on his diagnosis some years prior, and called a mole “benign”, when in reality it was stage 3 melanoma. Some sort of law suit arose, and my mother was awarded with money that ended up taking care of us for years to come (I even received an inheritance from it and blew it all). But if that law suit never came, the money to care for us would not be there, and my mother would be in dire straits financially. We would most likely have lost everything and moved in with her parents or a relative who could assist while she tried to get back on her feet.

Why Don’t More People Have Life Insurance?

According to an article on USA Today, in 2010, “Only 44% of households have an individual life insurance policy, and 30% have no individual or employer-provided life insurance…” They stated that there were 11 million households with children under the age of 18 who had no life insurance policy in place. The common refrain from those who chose not to buy a life insurance policy was that it was not their top financial priority. Whether it’s the downed economy, lack of knowledge, not wanting to face their mortality or just plain procrastination, it’s clear that people don’t feel that life insurance is enough of a priority to throw a few dollars at a month.

What Did We Do?

I’ll be the first to tell you that I have not done years of research and comparisons on the whole “term vs. whole life” debate. I can tell you that I have thought through why we made a term life insurance purchase, and why I recommend it for most families. And I say “families” on purpose, because I do not believe that you “need” life insurance unless you have someone else depending on your income (or family contribution). If you are single and are  getting married or starting a family in the future, it may be wise to look into term life insurance rates at a young age when you are healthiest and the rates will be lowest. You may save yourself some money by getting into a policy now vs. waiting until you are older.

I recommend getting a term-life policy for a few reasons. Term life insurance is cheap to buy for a large amount of coverage, you can select your term depending on when you feel you won’t need the insurance anymore (i.e. kids move out) and it frees up any other income to invest anywhere you choose, so you can work toward becoming self-insured (financially independent).

We ended up signing me up for  a 25-year term-life policy at $1,000,000 for $43 a month. I came up with this number by calculating how much my wife would need to life off of indefinitely at a 4% interest rate. She would first pay off the house, and then invest the rest, being able to live off the interest alone and leaving the principal there to provide the passive income. After tithe, her monthly income would be $2100 a month at that 4% interest rate. Based on our budget, this would cover every line item in our budget, with some wiggle room as she gets adjusted to life without me. And trust me, just typing that sentence makes me feel sick to my stomach, but reinforces that we made the right decision in getting this policy.

This Is Important

You are going to die. That sentence should make you uncomfortable. I hope that it makes you uncomfortable enough to get off your butt and look into getting a life insurance policy. It is one of the ways you can tell your family you love them, and can continue to love them even if the worst thing imaginable happens. Please don’t wait like my dad did, and don’t ignore it, as 30% of American households do. Set aside $30-$50 a month and give your family one more reason to sleep well at night.

Comments: Do you have life insurance? Why or why not? Do you know anyone who died without a life insurance policy in place? How were they able to cope without the insurance to help pay for their major life adjustment?

Resources

Here are some great resources for those who want to learn more about life insurance:

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Comments

  1. I wrote about my decision to not have life insurance right now on my blog today. I will be buying insurance when I have a kid though. I just don’t want the term to expire before the kid graduates from college. As much as it stinks people really so need to consider their current needs and plan for their future needs.
    Lance@MoneyLife&More recently posted..Life Insurance Movement – Why I Don’t Need Life Insurance Right NowMy Profile

    • I agree. Get life insurance once you had a kid, and get a term that will last as long as you have kids in the house. It sucks to think about, but is absolutely necessary, and makes you feel better once you have it.

  2. I have some that is offered by my work. It’s not a ton, around $100K. I don’t think I’ll increase it until I have kids though.
    Michelle recently posted..Do You Want To Be Self Employed?My Profile

  3. I don’t have life insurance because nobody depends on my income, but if that were to change I would buy some term life insurance.
    Andy Hough recently posted..Personal Finance Links – Kansas City EditionMy Profile

  4. It sounds like the life insurance decision is pretty personal with you Jacob. The lack of a strong life insurance policy could’ve really been disastrous for your family. People just have a really tough time accepting that they may die before they get old. So they end up taking that unnecessary risk to save some money. Since I’m still single I don’t have life insurance, but I will get some when I have kids.
    Modest Money recently posted..5 Places You’re Not Looking for Content IdeasMy Profile

    • Seems to be consensus, that the best time to buy in is when you have kids. It definitely hits home with me in a big way, and I am truly blessed to not have gone homeless because of my father’s death. People are scared to face their mortality, so avoiding it because dafault. The thing is, life insurance is pretty easy and cheap to get, so it should be a no-brainer for those with dependents.

  5. Sad stories, Jacob…but I think those stories help people relate and can put themselves in those situations and therefore understand the need for life insurance.

    I’ve met with a few clients that have had husbands pass and were left with major amounts of debt and no life insurance. I’ve seen a few widows file bankruptcy because they were left with nothing and had no way to pay all of the expenses that were racked up as their husbands battled for the lives.

    My wife and I both have term policies and it’s the best thing I could have done for her.
    Jason recently posted..Recipe: Vegetarian BologneseMy Profile

    • You have seen first hand the devastation caused by a lack of planning :(

      My wife feels loved because I have a term policy, so I agree with you that it’s one of the best things I have done to care for her.

  6. There’s more to insurance than term insurance. I think the fault lies in the that agents don’t know how the other policies really work and they don’t know the exact costs to them either. I actually use my Variable Universal Life Policy (in addition to my other retirement accounts) as supplement for my retirement. No one is dependent on my income. But it is part of my long-term strategy.

    I think you brought the message home…you never know. Thanks for sharing with us your personal story to rely such as important message
    Ornella @ Moneylicious recently posted..Why Life Insurance is More Important Than You ThinkMy Profile

    • Thanks, Ornella. I’ll be the first to admit I have not done a long-term comparison, or worked out the numbers in an investment scenario. Term worked for me because it’s cheap and covers my family’s future should something terrible happen. Universal life might be something to look into for investment purposes, but I don’t want to rely on it for life insurance in that case.

  7. I don’t have life insurance because I am the only one that is dependent on my income. Once I have children, I will most certainly opt for a term policy that will cover my family until the kids are out of the house.

    I think most people don’t have life insurance policies is two-fold. One, because we don’t want to think of our own death and two, most people assume their day of reckoning will be years away. Same reason most people don’t have up to date wills and estate documents. Same could be said for why so few max out their retirement accounts – it’s so far away, I’ll have time to do eventually.
    MoneySmartGuides recently posted..Top Cars of the WealthyMy Profile

  8. Reading most of these posts it sounds like most people think that Life Insurance is only important if you have kids! What about a Wife?! What about your family that will be left with the expense of paying for burral costs and possibly and bills you have outstanding? People Life Insurance is not about you!! Its about making a statement of love for your loved ones!! I think more new husbands should buy policies put the purchase in a special box with a big bow on top and present it to their new bride!! What says I love you more then, even when I am gone I will love you and protect you and provide for you?!! Think about it :)

    just a side note…Dont worry about the Term running out, you can get another term after that!! Even though a lot of people talk about getting to the point where they will “self-insure” Term is so cheap that it doesnt make sence not to have it!! So just keep the terms rolling! and for those with kiddos, most policies have the ability to add child ryders to the policy for close to nothing (like $5 per month) that that if the worst was to happen you dont have to deal with paying for that ontop of the pain!!

    • I like the idea :) Life insurance as a gift to your spouse. I think if you have a mortgage and your spouse cannot cover the cost of it, you should have some amount of life insurance for sure. Kids usually trigger a great point to get insurance because many look at having their spouse stay at home to raise their children, therefore forfeiting their income.

      And great tip with the term insurance. I will definitely look at getting another term when mine is up at age 40. it’s so inexpensive, might as well keep it rolling :)

  9. kristine Paulino says:

    Hi Jacob, I agree with you. It is important to have life insurance. Even when you don’t have children because there are so many expenses to take care of if something happens to a loved one. And as for a single person, it helps the cost for funeral and others bills. There is a lot to think about but lots of people don’t. So even when you dont have children its good to start up with some insurance, you can always add more. The cost of term is much less when your younger,always get more than what you make. Thank you for writing on this subject it is something you don’t always think about when living for today. Love you, mom

    • Mom! Thank you so much for telling me about dad and his past as an avid budgeter :) It’s crazy how much we are alike!

      You’re totally right, you can start with a small amount and then purchase more as your needs change. Getting started is the most important thing. Thanks for stopping by, love you :)

  10. Sorry about your dad. A good friend of mine is going through the same thing. It’s hard enough to lose a spouse/parent without having to worry about money too.
    Chase
    Debt Free Teen recently posted..Debt Free DatingMy Profile

  11. I have a friend who is a chiropractor. He’s done quite well in life. He tells a story of how his father passed away when he was 8 I believe. He was the oldest of four. His dad had a good amount of life insurance. Because of this, his mother was able to raise them comfortably and he was able to go to college and do what he wanted. Otherwise he would have had to straight into a job. Life insurance is a necessity if anyone depends on your income.
    Kim@Eyesonthedollar recently posted..How to Afford Expensive HobbiesMy Profile

    • It would be an interesting case study to look at kids of someone who didn’t have life insurance vs. someone who did. It sounds like your friend was blessed with a father who planned ahead and had the right amount of life insurance. It’s really unfortunate when for one reason or another, the breadwinner passes and they don’t have this insurance in place. It can really change the course of their familie’s lives forever.

  12. Really sorry about your Dad. I bet he’s pretty proud of you. I’ve wondered what the premium upcharge would be for someone with young cancer in family history. It’s still amazingly cheap for the insurance.
    Nick recently posted..I hope you really like Angry Birds….My Profile

  13. Karoline Wade says:

    Hi Jacob, your dad sold us our life insurance which we still have, but it is term and that term is going to be up in 2 years . We like so many others our age still have house payments ect. when the term is up, and because of our age, its going to get spendy:) Any suggestions for over 50 after term up? Aunt Karoline

    • Awesome that you bought insurance from my dad :)

      If you feel like you dan’t have enough in savings to cover the expenses and live off your income until you retire, I would suggest getting another term policy. Just a quick quote lookup shows a $500,000 policy for 20 years would cost you about $168 a month. Since there is a history of cancer, it may be much higher.

      It really depends on your savings, and if you feel like you will be financially able to cover the cost of losing one income. I would suggest maybe a 15 year term to carry you into retirement. That would run about $126 a month, but again, may be much higher because of a history of cancer…

      Feel free to email (using “contact” page above) if you want to get into more specifics :)

  14. Great title! I think having life insurance is very important, and that is why I have it!
    Robert @ The College Investor recently posted..Why Young Families Need Life Insurance More Than AnyoneMy Profile

    • I like your post title as well. It is definitely VERY important for young families, as they usually don’t have enough assets or savings to withstand the death of the family breadwinner. Plus, with kids and momma at home, the expenses are much higher.

  15. Unfortunately, you hit the nail on the head. We are all going to die. Working in the funeral industry is a constant reminder of this. This is why it is imperative to purchase life insurance to protect your family!!
    Holly@ClubThrifty recently posted..The Necessity of Life Insurance: A Mortician’s ViewMy Profile

  16. We work together in a mortuary. Greg is a mortician and I work in our office!
    Holly@ClubThrifty recently posted..Start Saving Money Today with These 4 Simple TipsMy Profile

  17. Memento mori, indeed!
    Joe recently posted..How to Roll Coins: A Guide for Literal IdiotsMy Profile

  18. We both have life insurance but Mrs.CBB has had it for years. I’ve only had it for around 5 years now and hopefully since we quit smoking it will go down early next year. I think it’s important because even if we don’t have kids at least I know my wife will be ok or vice versa. It also helps when you don’t get mortgage insurance(never would)as it only pays the remainder of the mortgage instead of a term insurance that pays out 100%. Cheers Mr.CBB
    Canadianbudgetbinder recently posted..How We Designed Our Budget Step 10- Projected ExpensesMy Profile

  19. GREAT post! We got life insurance once we had kids (we actually waited til I was PG with #2… we procrastinated a little because, like you said, thinking about death sucks), and have separate policies on each of us. Plus, my hubby works in law enforcement, and should he be killed on the job, there’s a VERY large death benefit for me and the kids… not fun to think about, but sometimes you have to.
    Elizabeth @ Broke Professionals recently posted..Carnival of Financial Planning – Money Management Edition #251 – August 25, 2012My Profile

    • The best part about having the policy in place is you don’t have to think about it. Dwelling on “what if” really sucks, especially when talking about death, but life insurance helps ease the burden…

  20. I have term life and whole life insurance because I have daughters that rely on me for financial support. When we were expecting our first child we put together put life insurance plan and have stayed with it for over a dozen years now. We have both changed jobs since we first put our life insurance in place, so have many people today. That’s why it’s important to have your own life insurance outside of your job, because you never know when you may be without work, and without the life insurance plan provided by your employer.
    Hadley recently posted..Why Choose Term Life Insurance?My Profile

  21. I remember our neighbor and our close family friend, 5 years ago when there dad died in an accident and he doesn’t have any insurance, the family had a hard time recovering, they have debts, medical bills to pay, one bill after the other, it took quite sometime before they recovered, when things are fine the mother decided to get her insurance she even talked my parents to have one, also now that I’m a parents my self I have an insurance too, I took the term life insurance, we want to secure the future of our love ones, its also a very responsible things to do also take it as a consideration that funeral fees are expensive.
    mariegee recently posted..The True Meaning of Discount Term Life Insurance RatesMy Profile

    • I’m glad that you are caring for your family by protecting them from the unknown. Of course, we don’t want to imagine anything bad could happen, but, you are showing how much you love them by securing their financial future should the worst happen. I commend you for that!

  22. A little late, but would like to chime in. We do have life insurance. At 42, and hubby being 37, and our children included, it is under $60 a month for us.
    Three years ago, my husband had three close calls with death, only 6 weeks apart. Thankfully, I would have been taken care of, not having to struggle to make ends meet, had he actually died. THAT is why we have life insurance. One just never knows what situations they may face down the road. We had seen several untimely deaths around us, and thought it would be wise to get it. Thankfully we haven’t faced that trial in our lives yet, but if either of us pass away unexpectedly, trying to come up with the funeral expenses will not be an extra stress that either of us will have to face.
    Josanne recently posted..I’m PuzzledMy Profile

  23. Charity Feb says:

    A little late, but can I chime in? Just as vital as having life insurance is making sure your paperwork is in order. I found that out the hard way.

    My sweet husband, fittest man I know and father of our 3- and 6-year-old, died of heart failure (a virus going around our family chose to attack his heart) the day after Thanksgiving. He was preparing for retirement, and we often discussed our plans for our financial future. He took great comfort knowing his US Post Office life insurance would take care of us if the worst happened. He was 59; I am 41.

    Days after I reported his death, USPS called to tell me two of his beneficiary forms were filled out incorrectly, so his previous beneficiaries – two grown, mostly estranged sons from his first marriage, both in their 30s – would get his life insurance. Because it’s USPS (therefore federal), community property and child-welfare laws/court leanings don’t apply. I’m suing, but not hopeful.

    Since March, his sons have bought two vacations, a computer setup and a 2012 Camaro (I’m not watching anymore) – while I work full time in a temporary position in customer service, scrambling to pay off debt and get some semblance of security. Oh, and grieve. And raise two young children.

    My sweet Walter never thought he had reason to doublecheck his paperwork (heck, he was the fittest person we knew; we never thought he would die so young!!!). He followed his HR department’s instructions, and didn’t give it another thought. USPS says they aren’t responsible for faulty forms, even if they caused the faults.

    Check your forms with your own eyes, folks! Widowhood is bad enough. Widowhood and this? Crazymaking.

    P.S. I’m looking forward to perusing your site. I’m highly motivated to make the most of the the benefits we *did* get! It won’t be easy, but with good planning and lots of Help from Above, we will be okay.

    • Charity, I am so sorry to hear about your husband :( Thank you for sharing, this is EXTREMELY important advice for those who want to be financially protected from a tragedy such as untimely death. As I recently applied for life insurance, I have my wife and my son appointed as beneficiaries, but as soon as we have another child, I will ensure I have it updated ASAP, and will double-check the forms with my own eyes. Again, I am truly sorry for your loss. Let me know if I can be of any help with planning, budgeting, or any other financial questions.

  24. Charity Feb says:

    Thanks a lot, and thanks for the quick reply! I’m thinking of sending in a Budget Friday submission. :)

  25. I don’t have insurance coverage coverage because nobody depends on my income, but if that were to change I would buy some term.

Trackbacks

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