Insurance in the Afterlife

by Kristina on July 29, 2010 · 2 comments

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Many of us wish to leave a financial legacy behind for our loved ones after we pass away.  Providing for our loved ones may come natural for most of us, and it usually doesn’t end upon death. If someone has not accumulated enough wealth throughout their lifetime to cover all final expenses, then life insurance is an alternative option to cover the costs.  Purchasing a Life Insurance Policy can be a key element in estate planning and leaving a legacy for surviving beneficiaries.

Financial advisors as well as some insurance advisors tell clients that insurance should be used for two purposes. The first purpose is to cover all final expenses upon death such as outstanding debts, as well as funeral and burial costs. The second reason to purchase life insurance is to continue maintaining a certain lifestyle for your family. If you are the sole provider for your family, you may want to ensure that your family’s lifestyle is maintained after your passing.

I don’t necessarily agree that these are the only two reasons to purchase a life insurance policy. Sometimes people buy life insurance not out of necessity to cover final expenses, but as a final gift upon their passing. Not enough life insurance is never good because we may not be fully protected.  However, too much life insurance protection is also not a good thing, as the monthly premiums can be very costly.

My Dad has a life insurance policy on himself which names both my sister and I as the beneficiaries.  You may remember from previous posts that Tara, my sister, and I are both DINKS, and we both work in the Financial Services industry.

Last year when my Dad retired we reviewed his expenses and created a fixed budget since he is now on a fixed income.  I told my Dad that the life insurance policy premiums are an unnecessary monthly expense, and he should cancel the policy.  My sister and I both have good jobs. Although the monetary gift is appreciated, it is not necessary.  My Dad doesn’t currently support my sister and I financially, and therefore he shouldn’t feel the need to do so in the future.  However, my Dad doesn’t want to hear anything about our financial opinions, and he still has the life insurance policy.  He says that it is his last wish, and he wants to leave us a financial legacy.

As a DINK some of us are employed by companies and some of us are self employed.  If you have a career that provides employee benefits, we should take advantage.  At this stage in our lives, our life insurance policies should be through our employer’s group benefits. The rates for group life insurance are cheaper than individual policies and the premiums are usually assumed by the employer. Do you have insurance coverage? If so, is it to maintain a lifestyle, offer a financial gift, or to cover final expenses?

If your answer to that question is D, none of the above, then your life insurance premiums are an added monthly expense.  Regardless of the reason behind a life insurance policy, there should be a reason and a purpose for the protection. Do not incur the cost of life insurance premiums if it is an expense that you can spare.

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(Photo By HamedSaber)

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{ 1 comment… read it below or add one }

1 Tim July 29, 2010 at 11:12 pm

if we are talking about wise financial decisions, I see all insurance as utilitarian. to this end, the only reason to have life insurance is to provide enough money for the loss of income to train/retrain left behind dependent(s) and cover expenses during that time. like all other insurance, if you are buying more life insurance than is needed, then you are paying for something that is not needed. many people view life insurance as a lotto ticket for folks left behind, which is a value judgment, but not the best financially sound one. as we are dinks, we have life insurance sufficient to cover our sole debt, our mortgage. our term life will expire the same time as our mortgage does (30 years), at which time, there is no need for us to have life insurance.

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