Life Insurance: Do You Have It? Do You Need It?

by Kristina Tahnyak on November 3, 2011 · 0 comments

Good Morning DINKS.  Today we are talking about a subject that has always been controversial in Personal Finance; today we are discussing the benefits and features of Life Insurance.  Last Thursday as I was watching The Big Bang Theory on CBS I saw 3 different life insurance commercials…in a ½ hour TV show.  It made me start to think…is Life Insurance really needed by the masses like shampoo or deodorant?  As a Financial Planner I personally don’t sell Life Insurance to my clients, but I do take it into consideration when I am preparing a Financial Plan.

Life Insurance is an important aspect to our Estates and therefore we have to consider the option of having life insurance when we are drafting a Will For many years there has been a debate as to whether purchasing Life Insurance is a smart idea or a sucker’s investment.  Some people don’t want to buy Life Insurance because they pay the premiums while they are alive but they don’t get to enjoy the benefits after they are gone.  Some other people buy Life Insurance because they feel it gives them the peace of mind that their family will be provided for in the unforeseen event of their death; and for some people family is priceless.  I personally believe that Life Insurance can be an important part of our Financial Lives, but it all depends on the reason why we are purchasing the Life Insurance Policy.

My Grandparents never purchased Life Insurance on themselves or on each other because they felt it was bad luck.  My Grandfather always said that he never purchased Life Insurance because he didn’t want to die.  Unfortunately at one point or another we are all going to pass away.  My Grandparents felt that purchasing Life Insurance would speed up the process.

Life Insurance should be purchased to protect assets in the event of death.  Many people do not hold individual Life Insurance Policies but they do have Life Insurance on their assets such as their Home, Car, and Cottage if they have a loan outstanding against them.  If we don’t have assets but we have debts Life Insurance can be a way for us not to leave a financial burden on our families after we pass away.  If we have assets that do not have loans attached to them, and we do not have debts, we may not need Life Insurance.

I have a coworker named Dave who works in personal finance and he is still not convinced that Life Insurance can be a good financial strategy.  He repeatedly (almost daily) tells us how insurance is the biggest profit making industry in Finance and anyone who buys life insurance should save their money and play Black Jack.  In Dave’s eyes when it comes to Life Insurance the house always wins because everyone pays premiums but not everyone receives the benefits of their Life Insurance Policy.

This may be true for Term Life Insurance Policies.  Term Life Insurance is purchased for a specific period of time such as 5, 10, 15, or 20 years.  Throughout the term the insured pays the Policy Premiums but if they don’t die within the term no one receives the policy money.  So what do you think, is buying Life Insurance a Gamble or a Good Bet?

Life Insurance can be used to provide cash flow to a family in the event of the loss of income from the Head of Household.  If there is only one spouse working in the home they may buy a Life Insurance policy to guarantee that the surviving spouse continues to receive a monthly income in the unfortunate event of his or her death.

Some people buy Life Insurance to leave a financial legacy behind after they have passed away.  As a Financial Planner I often see Grandparents leave a financial legacy for their Grandchildren’s Education.  In Personal Finance we always advise clients that the Life Insurance premiums should be worth their cost.  Insurance should always be for protection, not profit.

(Photo by Gareth1953)

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