Why We Don’t Buy Life Insurance
Posted by John Draper | Filed under Insurance
There’s no product in the financial world that’s been more maligned than life insurance. Part of the problem has been the heated and often vicious debate that’s raged between the proponents of term insurance versus those who favour permanent insurance. The other part of the problem is that people have been “sold” insurance – as opposed to making an informed buying decision – and that’s left a really bad taste in our mouths.
And so the life insurance joke is born:
I bought a new life insurance policy but the small print is impossible to understand. All I’m sure of is that after I die, I can stop paying.
Buying insurance is what keeps people poor so that they can end up dying rich.
Life insurance agent to a would-be client: “Don’t let me frighten you into a hasty decision. Sleep on it tonight. If you wake in the morning, give me a call and let me know.”
Despite the fact that life insurance has a bad rep, there are still good reasons to buy. Course, not everyone believes that.
Some people believe if they don’t work outside the home they don’t need life insurance. With no paycheque to replace, premiums seem like a waste of money. So, answer me this: with the other guy at work all day, who will watch the kids, do the laundry, drive hither and yon, make dinner, do the laundry, vacuum, grocery shop, do the laundry? How much would it cost to replace you?
Young people know they are never going to die. And if they do, it’s a long way off. Since the odds are in their favour, life insurance premiums are a waste of money. This is a paradox since if you buy your life insurance when you are young, you’ll pay so much less for it. Let’s be reasonable here, don’t you think a life of peace of mind is worth a few hundred bucks a year? Course, if you’re a gambler by nature and choose to take your chances skipping life insurance completely I only have one more question for you: how come your stuff is worthy of insurance, but your life isn’t? Maybe it’s because YOU don’t have to deal with the ramifications of your own death so it’s easy to ignore them.
Since many people are covered by life insurance through their benefits package at work, they believe that individual insurance is a waste of money. Have you even reviewed how much your work insurance provides and calculated whether this is enough to support your family? And when you leave that job for the next, will you still be young and healthy enough to get the insurance you need because the work plan just doesn’t cut it?
Then there are also people who avoid buying life insurance because they simply don’t want to think about their own demise. Ya know what? You’re gonna die. Yup. You’re gonna. So get over yourself and do what it takes to make sure your family isn’t left holding a Pot of Nothing when you’re safely pushing up daisies.
Almost everyone needs life insurance. Unless you plan to lead a solitary life and have no one that depends on you, you’ll probably need insurance at some point. The longer you wait, the more expensive insurance coverage will be, and the greater the risk that you won’t qualify because you develop some hither-to-unknown disease. Get coverage as early as possible so it’s cheap. And quit procrastinating. It’s not going to be any more convenient next Thursday.
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September 24, 2008 at 7:56 am
So Gail – which is better in your opinion? Term or permanent?
September 24, 2008 at 8:17 am
I have to say I feel so much better HAVING insurance than not. Before we were expecting our son, we only had our mortgage insured should one of us pass away because we figured if that happened the other would be able to handle the living expenses just fine.
Once you throw a child into that picture, everything changes. We are lucky to have an excellent insurance agent who has 40 yrs + experience in the business and owns his own company. He sat down with us and reviewed our old home owner polices etc and pointed out things that we wee not covered for that we needed. He didn’t try to sell us more than we needed. We really discussed numbers when choosing our coverage. How much would be enough? etc. We also purchased health crisis insurance which gives me more peace of mind than the life policy does.
Yes it sucks to pay that premium each month, but it will so be worth it if we need it.
I recommend finding an agent that you are comfortable with and who has the knowledge and experience behind them. I know everyone needs to start somewhere, but in my experience it worked out much better for me.
September 24, 2008 at 9:38 am
Frugal Grad: Too long an answer for this spot. I’ll blog this. Keep your eyes open. g
September 24, 2008 at 9:45 am
I actually think there are a lot of people who don’t need life insurance at all or at least beyond the standard 2x coverage that is offered as a benefit in the workplace. I’m a 32 yr old professional, no kids by choice and my partner is not financially dependent on me.
Once my youngest sibling was finished university I also encouraged my mother to cancel most of her life insurance.
The test is whether one has any dependents. If the answer is no, your need for life insurance is minimal unless you are keen to leave a pot of money to relatives or to a charity (which can be a great idea).
September 24, 2008 at 12:34 pm
@ Julie – my thoughts exactly. No dependents likely means no need for life insurance.
Otherwise I do think it’s a good idea, though I strongly discourage any time of life insurance that combines any form of investing, insurance companies are terrible at this and charge huge fees.
September 24, 2008 at 12:52 pm
Julie and Geoff – just as long as you have enough to cover funeral expenses, etc. You wouldn’t want to put that on friends or family… dependants or not.
September 24, 2008 at 1:59 pm
I have more insurance that I probably need, but at the same time, you don’t know when you will die, and what that expense will be. Who wants to burden their family with final costs. Nobody. The fact that I am young allows me to have decently low premiums.
September 24, 2008 at 2:05 pm
Our kids are still young so Life Insurance is a must. The hard part was finding a provider that would agree with us on what our needs are. Hubby and I ended up getting joint-term since we are almost the same age and in good health — and we found a provider that puts the kids on as a rider, so if the unthinkable happens and one of the kids pass away, then the funeral expenses and greiving time won’t kill us financially. We went for term for the cheaper monthly rates mostly (young kids, lots of financial commitments) but we made sure it was enough to cover our ass-ets. I just want the kids to be decently cared for until adulthood and an appropriate amount of time off work for hubby to adjust to the new situation (if heaven forbid the kids are young when I go).
When the kids are grown and the house is paid for, our insurance will be going WAY down. Our savings should be decent by then and will last longer if only me or my husband is drawing from it, right? That is my master plan anyhow.
I dislike thinking about it too much, but there is some peace of mind knowing it’s covered.
September 24, 2008 at 2:28 pm
So just to be clear, even though I am young and single – with absolutely no dependants – and am covered by my work policy I should STILL go out and purchase a separate life insurance policy?
I understand that by doing this it is portable while my work one is not, however I am not convincied this is a wise investment for me at this stage in my life. Earlier this year I DID purchase a Long Term Care policy, and feel comfortable with that because that is something I will use if I need it – not something that will go to my parents who don’t really need it.
September 24, 2008 at 2:39 pm
We purchased a joint term life insurance policy when we were only 25. With two babies and our good health it totally made sense. We also added our children as a rider on the policy. So in the event of the unimaginable, at least we wouldn’t have to worry about the cost in the midst of the grief. At the time, my husband had a job that also offered an insurance plan and as life changes, he now owns his own company and doesn’t have the same options. Now we have four children and I am a stay at home mom who babysits from my home. If something happened to me now, our mortgage would be paid with our mortgage insurance and I would be able to live like we are now for about seven years before I had to start making some changes. At that time I would still have to start subsidizing our income, but childcare for four children? My family lives overseas, and his parents are in their mid 70’s. It is the peace of mind that we do not have to think about the future the day a spouse dies. Our best friend passed away two years ago from cancer at 33. Never thought it would happen. No insurance, couldn’t get any because of health problems that developed. The mom is left with one salary that does not cover all of the bills. Without her family’s help, she wouldn’t make it. Budget it in. I would choose my spouse over the money, but we couldn’t live without the money if he was gone. Life insurance is the only way to have total peace of mind.
September 24, 2008 at 2:41 pm
I agree, we need life insurance. For myself and my partner, it’s peace of mind that the other one is taken care of if something were to happen. Or that our kids will be taken care of. Especially when you own a home and have a mortgage, it’s nice to know that it would be paid off if one person were to die and leave the other behind to take care of everything. At least the other person would have some peace of mind in life after a horrific event like that.
We purchased life insurance outside of work and kept our basic one at work (included) so it’s like a bonus. With setting up life insurance, at least you can lock in at a lower rate when you’re younger whereas changing jobs means changing insurance and insurance rates.
September 24, 2008 at 4:47 pm
Maybe I am the only one but..my dad had life insurance that he paid into for 23 years with a major insurance company. This was only a $50,000 policy (This seemed like alot of money in the 80’s to my dad) and when he died I had to fight for OVER A YEAR to collect on it. They gave every excuse, sent more and more documentation (he died in hospital of cancer), it was an ordeal for my mom to deal with (she is deaf) and at the end I almost gave up dealing with them but it was the principle of my poor dad having paid into it for soo many years and thinking my mom would have a cushion when he was gone. I hate insurance companies and I am sure I’m not the only one. I would never rely on getting paid out.
September 24, 2008 at 9:30 pm
@ Cynthia and Jessie – if you have life insurance through work and reasonably young, then I personally don’t think you need additional insurance. There is an exception — if you get a 20 year term policy at age 30, for instance, it may be cheaper than a 20 year term at age 40, unless you keep your health up.
Most financial planners, of which I am not, recommend against insuring against the death of your children. This is a personal choice, but ultimately I agree with them – insurance is meant to replace a lost income, and the death of a child actually represents an increase in income. Even after funeral expenses, etc, the financial benefits of not paying food, clothing, etc will quickly become apparent. (This ignores emotional aspects, but insurance is meant to be a calculated choice after all).
September 24, 2008 at 9:51 pm
Julie, that’s great if you and your partner are so well off financially that you can “self insure” and easily absorb any losses that result from either of you passing, most people are not so lucky!
September 24, 2008 at 10:06 pm
I just called my broker today to inquire. Thanks for bringing this subject up. I felt that I had a little more knowledge that I was able to ask the right questions. We just had our second child and I was denied life insurance four years ago when we bought the house at 23 (cancer). It’s been two years since I was cleared so hopefully it will work out! Sometimes I feel horrible that if anything were ever to happen, my husband wouldn’t be able to afford to keep the house and pay for daycare. Since I am a self employed daycare provider, we don’t pay for daycare and I have no benefits of my own.
ps: Gail I love your show!! We are climbing out of debt quickly and saving money!!!
September 25, 2008 at 9:23 am
@ Tom – Julie said that she has life insurance through work (2x salary, which is better than my 1x salary / 2x salary if accidental).
September 25, 2008 at 11:59 am
Hi Tom. Yes, as Geoff mentioned, I do have 2x salary insurance. I’m not wealthy by our society’s standard and I don’t earn a terribly high income, but I live well below my means and that affords me a great deal of financial independence. I realize that it is not possible for everyone to have the same freedom as I have, but I do think that too many people live at or beyond their means and that requires them to spend even more money insuring against contingencies. I think we could learn more about thrift from our relatives who lived through the Depression. As the report from Merryl Lynch released yesterday starkly told us: our savings rates are inadequate. We have to redefine what is a want and what is a need. We need to waste less, buy quality, and start using things until they wear out. A report out of Quebec also released yesterday found that 75% of surveyed people were constantly stressed about money. It’s not worth it. One of the things I love about Gail’s show is how people realize that they can be closer and better to one another when they spend time together on simple things that cost little or no money. Incredible “wealth” is offered to us every day, all we have to do is slow down and focus on what really matters. Sorry for going on..
September 25, 2008 at 12:06 pm
Ahh.. Tom.. I see you are an insurance salesman.. so I doubt my comments about thrift have much resonance with you. Except, of course, I see that you are also a financial advisor so surely thrifty people are probably also of interest
September 25, 2008 at 7:47 pm
I’m with Julie – I see no need for life insurance over and above what I get at work. I would imagine that most DINKs are actually in a similar situation – if you have a reasonable mortgage and no dependents, I don’t see the value of extra life insurance at all.
Correct me if I’m wrong, but if your retirement savings and other assets go to your spouse when you die, isn’t that a little more ‘insurance’ anyway?
January 8, 2009 at 12:48 pm
just came across. Nice blog
April 17, 2012 at 9:46 am
To those wh say they dont need life insurance because they have no dependents. I say really think this through. The average cost of a funeral is around $10,000. I know families that had to finance the funeral because the deceased never took the time to purchase a lifeinsurance policy. Do you own a home that you want to leave to someone in your will. If you do thenthey have to assume tha payments. Maybe they will sale it-again they have to assume the payments till it is sold. Maybe you contracted a serious illness and ran up many hospital medical bills. Why youare laying in the ground safely pushing up daisies-surviving family members are being sought after to pay your medical bills. Yes – this is true-My dad is theonly surviving sibling of his family-his sister just passed about ayear ago-him being the only lone survivor of his family-he is being chased to take care of these medical bills that were his sisters. I personelly did not know they could do this- but it is titally legal-someone has to pay the medical bills. Ihave two 30 year term polices-the cost is 65.00 per month-it is a great investment so I know when I am gone wihtin those thisrty years then my survivors wont have to worry about anything. So to those that think becasue you have no dependents dont think you need life insurance-wake up and get out of denial and really start thinking about others instead of just yourself. And to you who talked your mother into canceling her life insurance polices-I hole you got a lot of money on the bank to pay for the funeral, burial, any unpaid medical bills-becaue if you dont I hope you have good credit so that you can finance this and be poayig for it for the next ten years. Bad decision on talking her into canceling her insurance because now if she wants it ti will cost her alot more.