Is There Any Real Value to Life Insurance?

Robert Farmer Bob Farmer, life insurance




If there is any one thing we all hate to pay for its insurance.  Most of us will go our entire lives paying for car insurance that we will probably never use.  If you never need it then it feels like a waste, but what if you do need it?


Life insurance is completely different in one very important aspect: at some point, you will die and collect on it, I can promise you that. Just in case you didn’t know, death is the number one killer of Americans. However, this begs an important question; if I’m dead why do I care?  Will Rogers, a famous personality from years ago once said, “anyone who dies without insurance should have to come back and see the mess they have left.”  While this is not always the case it is a problem when the deceased is young and has a family.  Who will take care of your spouse when you die, how about your children?  Will your home be lost, your retirement savings spent too early, your family impoverished?  How do you replace the income that has been lost?  Did one spouse stay home and raise the children while the other built a career and then unexpectedly died?  What option does the surviving spouse have?  They have no skills, insufficient savings, and no way to pay the bills.  Insurance for many people is the only answer if they don’t have sufficient assets and few young people do.


Here is what insurance is really for: it will help your spouse get on with their life and your children will have the means for a proper education. Your household has time to grieve and heal all the while bills are still being paid, groceries are being bought, and your legacy as a loving responsible parent stays intact.  Death is hard enough for the survivors without adding the potential of living in poverty.


Now if you are both in you late 70’s and have no debt, decent assets, and a good reliable income stream, insurance may not be that necessary.  If you understand the path I am taking you on you should realize that a young um-married person with no dependents has little need for insurance.  Maybe just enough to bury them and pay off a few bills.  But when that person gets married, buys a house, has a few children, then the need for insurance grows dramatically.  As they age and the kids leave home, the house is paid for, student loans are gone, retirement savings are on track then the need for insurance has gone down dramatically.  It’s really a big bell curve of, and in good health.  The permanent policy is still in place and can be used to replace a pension that may be lost when one spouse dies or just the lost social security benefit.  If it has sufficient cash value it can in some situations be used as tax-free income, to pay estate taxes, or leave something to loved ones while you still enjoy a robust retirement.


There is a good way and a bad way to insure yourself for this need.  When you are young your insurance should be mostly term insurance or insurance that is only for a certain amount of time.  So a 25 year old person buys a20-yearr renewable term policy for 75% of their insurance needs and a permanent policy like universal life for the remaining 25%.  When the first policy runs out at age 45 you have the option of renewing it at a higher cost for another 10 years.  That would take you to 55.  At this point, you should be seeing the need for insurance declining.  The children are gone, the house is close to be being paid off so you drop the term insurance all together.  The years go by and you stick with your financial plan and at age 72 you are living your dream life.  You are retired, you have maximized your social security, you are completely debt free.


The most common argument I get against insurance is it’s expensive.  If you think insurance is expensive, take a minute and calculate the cost to your family if the sole bread winner in the house were to unexpectedly die?  How long could they stay in their house, would they have medical insurance, clothing, food, and a future?


Insurance also has other uses besides just replacing income.  It is a great way to leave your loved ones a really nice inheritance without you having to scrimp.  It can, if used properly, provide tax free income.  It can pay inheritance taxes as well as provide a great low risk and tax free investment platform up to certain limits.  Some life insurance companies offer riders that can provide money in the event of a terminal, chronic or critical illness.   Explore the options and see how this wonderful tool can enhance your retirement.


So how can you tell how much life insurance do you really need?  This is something that we would love to help you understand and provide you some guidance on the most cost effective ways to pay for it.  Set up an appointment with one of our advisors and let us show you that having insurance is probably not as expensive as you think.