Health insurance should really be called life insurance and life insurance should be called death insurance. The only thing life insurance guarantees is a cash benefit when you die.
Most people outlive term life insurance
There are many good reasons to purchase life insurance to help ensure your family has a life after you are gone. In the short term, there is no better pay out if you die early than life insurance. Unfortunately, less than 2% of term life beneficiaries will actually benefit from the life insurance. That’s because the insured out lives the term.
Disability more common than accidental death
When I started to look at the incredible amounts of life insurance premiums being paid, with very little return to the policy holder, I began to wonder about the necessity of life insurance. You are for more likely to become disabled than die. Consequently, disability insurance is far more expensive than life insurance for the same amount of coverage. Because disability insurance is so expensive, it doesn’t make sense for the vast majority of middle income wage earners to purchase a policy. The same situation holds true for long term care insurance.
It is possible to make a case to purchase cheap accidental death and dismemberment insurance, even though accidental death rarely happens. There’s actually a 25% chance that an adult will suffer a disability during their working years. That is far higher than either natural or accidental death.
Hospitals keep people alive
Unless you buy a permanent life insurance, like whole or universal life, a term life policy will end before you die. I’m not arguing against term insurance or for permanent life insurance. What I want people to do is take a hard look at why they need or want life insurance in the first place. Our health care system, as screwed up as it is, has a great track record of keeping people alive.
It is always nice to leave your family something when you die. But let’s face it; you really want life insurance to pay your funeral expenses. If your kids are healthy and over 18, they can fend for themselves, with or without, a big tax-free life insurance pay day.
“Don’t you love your family?”, asks the Life Agent
Life insurance sales people are very good at calculating the astronomical amount of life insurance you should buy and all the good reasons for the purchase. It is hard to disagree that your spouse should have enough money to buy that dream home with her new husband or send your children to the prestigious Ivy League colleges.
However, if your goal is to mitigate the expense of your death, regardless of your age, consider a small whole life policy of $25,000 or $50,000. You can’t out live it, the premiums will be reasonable, and it builds small cash value. When the time comes, your family will have the funds for the funeral, party, or to fly your remains back from the mountain you were climbing.
Consider paying yourself first
Take the money you would have spent in premiums on a $1 million policy and put it into your retirement account. I know there are people who will tout that life insurance death benefits are tax free and the distribution of a retirement account is not. If the tax liability to your heirs is your primary concern, then you are free to put all your disposal income into a life insurance policy. Someone is bound to have fun on your dime.
Name a charity as the beneficiary
If you really want to be charitable, name your favorite charity, nonprofit or church as your beneficiary. The gift of a life insurance benefit upon your passing can be used to set up an endowment that will help thousands of people.