Reasons to Buy

Word count for this week's article:  505

Approximate time to read:  About 2 minutes



Life insurance is a risk protection tool, and the primary risk it protects against is the loss of the insured’s income by reason of death. Although there can be many, the three main reasons it is bought are to 1) replace the insured’s income, 2) liquidate debt, and 3) fund children’s educational expenses. The amount of insurance purchased will determine whether those expenses are offset fully or partially.

If the loss of income by reason of death would affect someone’s lifestyle, that is an indication that life insurance should be considered. But that’s not the only time it should be considered. I’ve stated many times the dramatic difference that age and health can have on the premium.

A male age 30 will pay approximately a third more per year than his 22-year-old counterpart. And that assumes the same underwriting classification. Health usually doesn’t improve with age and while most maladies don’t manifest before age 30, they certainly can, and if they do, the premium could be 50% higher or even more in extreme cases.

If a parent or grandparent had the foresight to purchase a policy on their newborn, the premium is less than half what it will be at age 22 and in all probability, will require no out of pocket premiums to keep the policy in force.

There are a handful of basic objections for not buying. One is “I can’t afford it.” This usually means I haven’t done a good enough job of explaining the value because like I said last week, the monthly premium of a policy (depending on age, health and amount) can often be found in the cost of streaming services and take out.

Another common objection is “The odds are small I will die young.’ That is a true statement, as relatively few people die young. If that weren’t the case, life insurance would be unaffordable. It isn’t that the odds are small of dying young, it’s the consequences to the survivors if you do. After all, the odds are good (83%) that you won’t die playing one round of Russian Roulette, but the consequences are fatal if you lose.

The last objection I’ll address is “I won’t need it when the house is paid off, the kids are emancipated, I retire, etc.” However, there can be a thin line between needing it and wanting it. 

Take a retired couple who both have defined benefit pension plans, say $5,000/month each and social security of $3,000/month each. When the first one dies, the survivor could see their income drop by up to 50%. The deceased’s social security is gone and depending on their pension election, their pension could be gone or significantly reduced. Additionally, the survivor, after the year of death, will have to file as a single taxpayer instead of married joint. Do you think the survivor might welcome a little cushion in this scenario?

There are more excuses not to buy than there are reasons to buy, but the excuses will only sound ridiculous to the survivor(s).