On Umbrellas, Safety Belts and Life Insurance

I believe a thing’s true importance is most evident when you need it but don’t have it. Take the umbrella. It’s nice to have when it’s raining but if I have to be out in the rain without one, I’m not going to melt.

At the other end of the spectrum – the safety belt. Nearly 63,000 lives were saved between 2008 and 2012 due to seat belt usage. Sadly, too many drivers still get behind the wheel without buckling up. Nearly 18,000 additional lives could have been saved had passengers in fatal crashes been wearing their safety belts[1].

“It won’t happen to me”
When it comes to owning life insurance, I think there’s a similar “it won’t happen to me” attitude, a mindset that is only growing as we’re increasingly bombarded with statistics on longer life expectancies. While people are living longer overall, I’d contend the averages are irrelevant because working age people are still dying. In 2010, more than one in four who died in the U.S., some 670,000 people, did so before reaching age 65 with[2]:

  • 1 in 7 dying before age 55 and
  • 1 in 8 dying between ages 55 and 64

Today, the number of individual life insurance policies is down by nearly 50 percent from 30 years ago. While the total dollars of individual life coverage over that period more than doubled to $1.6 trillion [3], that pales in comparison to the level of household debt – $11.5 trillion as of Dec. 31, 2013 [4].

As much as I believe I’ll live into my nineties, my decision to buy life insurance came down to answering one simple question – if I die, do I want my wife burdened with mortgage debt, partially funded college savings for our kids, and the change in lifestyle that would come with the loss of my paycheck. The answer was easy – “I don’t want that to happen to her” outranked “it won’t happen to me.”

No more excuses
With Life Insurance Awareness Month coming to an end, I hope I’ve provided some food for thought for those who think they don’t need individual life insurance. A quick point or two for those who believe they need coverage (or need more) but haven’t made it happen:

  • It doesn’t cost too much – a healthy, 40 year old non-smoker can get a 20-year term policy, with $400,000 of coverage, for less than $1 per day.
  • You can figure out how much insurance you need – there are a lot of online calculators available to help. As a good starting point, think about what it would take to unburden your loved ones – from things like mortgage debt, student loans and credit card debt. Then think about what it would cost to fund future obligations, like your children’s college savings. And if you’re a primary wage earner, you may also want to think about replacing a portion of your paycheck.
  • There are multiple ways you can buy it – through a financial advisor or agent, as well as online.

One last piece of advice: please don’t over think it – first and foremost, individual life insurance is about taking care of your family’s needs in the event of your death, and the peace of mind that comes with it.

 

 

[1] National Highway Transportation Safety Administration estimates — http://www-nrd.nhtsa.dot.gov/Pubs/811851.pdf 

[2] National Vital Statistic Reports — http://www.cdc.gov/nchs/data/nvsr/nvsr61/nvsr61_04.pdf

[3] U.S. Individual Life Insurance Sales Trends, 1975-2013, LIMRA, April 2014.

[4] http://www.newyorkfed.org/householdcredit/2013-Q4/HHDC_2013Q4.pdf

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