Do You REALLY Need Life Insurance?

A long time ago, before I entered the insurance industry, the gentleman selling me my first policy stated it this way. “Somewhere in this town tonight, a father won’t come home and his family will face a second tragedy when the mortgage payment can’t be met in a couple of months.” Hyperbolic and extreme as it sounds, there is a valid point. Life insurance provides an excellent return to the beneficiaries. Perhaps your situation isn’t as dire as the family in the example, however, the loss of current and future revenues from a spouse or parent can severely limit or restrict the survivor’s options.

Life insurance in it’s purest form will provide a return, in the form of a death benefit, to the beneficiary the owner of the policy designates. This return will be greater than the sum of premiums or payments made to the life insurance carrier.

There are many theories about the best type of life insurance and an appropriate amount. Regardless of your opinion on types and amounts, there are two points that are indisputable: something is better than nothing, and sooner is better than later. Even if all you can afford is enough to defray funeral costs, you will save your family an immediate and often crippling expense. Age equals greater cost, even more so if age brings medical conditions that result in getting rated up. Regrettably, many clients wait, assuming that once they have extra money they will “deal with the insurance thing.” The flaw in this logic is that once you’re dead, you can’t get insurance, or once you have a documented health condition you may not be eligible for insurance at all.

The need is evident. It’s really hard to deny that a company willing to provide you an exponential return on your money, guaranteed by contractual law, when you die, is a bad idea. Unlike securities which are subject to the whims of the market, and taxable when sold, life insurance is not. When you obtain a policy, you should be provided with a year-by-year breakdown of exactly how much will be paid to your beneficiaries at your death. That’s security.

So how much do you need? A good way to get a starting number is to multiply your annual budget by ten. Even if you are a non-working spouse, you bring value to the household, especially if there are children. Add to this total money for college for each child. Include items such as payout amounts for credit cards or other loans and the cost of the funeral. This is a good start. You may want to consider a legacy, or additional funds that will go above and beyond just covering expenses.

This is a very general overview supporting the need for life insurance. There are various forms of life insurance available. In later posts, we will learn about these forms as well as provide definitions of the various terms associated with life insurance.