Everyone LOVES life insurance, right? I’ll tell you, nothing makes me happier than paying my monthly premium and thinking about how happy my family will be to get a large check when I die.
Normal people do NOT think this way.
From my perspective, that’s unfortunate, because life insurance is a vital estate and family planning tool. It may seem out of place for an attorney to be raving about life insurance, but few people have greater insight into the heartbreaking and preventable consequences of dying without it.
For those new to this planet, life insurance is, at its core, something you apply for and, if accepted (assuming you haven’t lied on your application), pays money to a beneficiary when you die. I've heard many excuses for why people don't have it. Life insurance can seem complicated because there are so many different kinds. Some people think it's too expensive. The thought of one's own inevitable death can also provide an obstacle. My hope is to offer some thoughts on how life insurance can serve as a valuable tool to your family.
I hope you’re sitting down for this - people need money. We use money to buy goods and services. It's the main reason we all work, right? When someone dies, the surviving family needs money. My perspective on planning contemplates what people would actually want for their lives and ignores "strategies" involving people downsizing themselves so they could live in a cardboard box. When you can get perfectly good protection for under $100 a month, I'd honestly rather not quibble about whether someone could possibly move back in with their parents - an all too common excuse I've heard for not needing life insurance. Below, I'll discuss two main phases of our lives in which, in my experience as a planner, people can most benefit from insurance proceeds when they die.
We're young and have a family! - Typically, both parents contribute to a family, whether financially or through their efforts around the home. If a parent passes, the surviving parent will need money for all the usual expenses, plus any number of new ones, including childcare and housekeeping. In a single-parent household, insurance becomes even more vital. In this phase, when children are too young to be independent, a family needs to make sure there is proper funding in place to provide continuity of lifestyle while trying to make up for lost income and future savings from the deceased spouse.
We're older and entering retirement! - Once couples have entered retirement, there begins to be much greater certainty about the financial picture. You're no longer as concerned with money to help raise your kids as you may be with leaving something to make their lives easier, helping grandkids with college expenses, having liquidity for final expenses, taxes, and other expenses which need to be paid while an estate is settled. Life insurance can also be used in some retirement strategies which enable couples to spend more of their retirement savings because they know that life insurance proceeds will be paid out when a spouse passes.
When you think about it, life insurance is simply the process of buying large sums of money with smaller sums of money. It's a tool used to solve the problem of replacing one's earning potential when they die. It's the simplest answer to a question people find too difficult to ask. When people can separate their emotional relationship with death from pure strategic decision-making, an array of often under-utilized opportunities become available and families can be far better off as a result.