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Does EVERYONE Need Life Insurance?
By JLP | September 14, 2006
My post Life, Not Death Insurance received the following comment from a reader named Emily:
I don’t understand the importance of life insurance at all. I am a 43 yo single woman with no children. Out of superstition I pay monthly for a term life insurance policy. My sister is on the policy in case I die. She is a very wealthy woman already. Do I really need 500k term life insurance?
My response:
Emily,
Most likely, you do not need life insurance. Life insurance is meant to help those you leave behind, should something happen to you. In other words, it is meant to help your dependents. Without dependents, there’s not much need for life insurance. That said, I wouldn’t just run out and cancel your insurance policy if I were you. What if you lifestyle changes? What if you get married? What if you were to have a baby? What if you needed insurance and were not able to get it due to the fact that you were uninsurable?
I guess what I’m trying to say is that although you may not technically need life insurance right now, if it isn’t hurting your finances I would consider keeping it. Finally, if your sister doesn’t need the money, consider leaving it to your church or charity.
Related:
How Much Life Insurance Do You Need?
How Much Life Insurance Do You Need? (Calculator based on above post)
Determining Life Insurance Needs the Easy Way
Topics: Miscellaneous | 9 Comments »
September 14th, 2006 at 3:44 pm
What if you lifestyle changes?
Go buy the insurance – its not complicated or time-consuming.
What if you get married?
Go buy the insurance – its not complicated or time-consuming.
What if you were to have a baby?
Go buy the insurance – its not complicated or time-consuming.
You definately do NOT need insurance unless you want to leave behind money for a charity.
September 14th, 2006 at 4:00 pm
On the contrary, JLP makes a good point, something could easily change that would make her uninsurable, or her premium higher. Cancelling just because she doesn’t need it NOW is not necessarily the best thing. Heck, saving money and retirement is never about the now. It is always about the later and the “what if”. What if she did cancel her insurance, then she ended up needing it, but then had diabeties, heart problems, high cholesterol, cancer, any number of things. Her policy could double, triple, or she could be uninsurable. Plus, the age the policy maters greatly. She 43 now. Maybe she got term 20 at age 35 or something. Her premium would definitely be cheaper than at age 40, 43, 45, or 50.
September 14th, 2006 at 5:43 pm
I like Todd’s answer. Life insurance in particular, and insurance in general is an area where there is too much emotion and not enough analysis. And it doesn’t help that most insurance is marketed with a huge dose of FUD.
So the cost of insurance goes up as you age. You have avoided paying the premium for several years. But you might get a disease and be uninsurable! Yeah, but more likely you won’t.
I’m not saying that all insurance in unnecessary, because I have insurance. Just that many people have insurance that is doing them no good, and would be better off putting the money into an investment instead.
September 14th, 2006 at 8:21 pm
Here’s a simple question I ask potential clients of life insurance,
Would someone you care about suffer financially if you passed away?
If the answer is yes, and they don’t have coverage, we need to consider it. If they answer no, I don’t pursue the issue.
Pretty simple ands straight forward question.
September 14th, 2006 at 10:34 pm
Todd and Sam,
I don’t sell insurance and I have a distaste for insurance products that are sold to people as an “investment” because insurance isn’t an investment. It’s insurance.
My point was that IF the insurance is cheap and you already have it, why cancel it? I stress the word “cheap.” If it is one of those “permanent” insurance policies with the cash value build up, then yes, it is probably a waste of money.
September 15th, 2006 at 1:39 am
Insurance isn’t ever cheap. It’s a pretty sure bet that the insurance company will get more money out of you than you’ll get out of them.
The cost may be worth it if you’ve got a family who is counting on your income. But otherwise it’s a losing proposition.
September 15th, 2006 at 11:09 am
I think it depends on her net worth. If she’s fairly well off, she definitely doesn’t need life insurance.
September 19th, 2006 at 9:20 am
Thanks JLP! I am a financial mess. I am 43 but it’s like I just landed on this financial planet. I am not wealthy I make about 50k a year. I started paying attention to my finances right after I bought my condo 3 years ago (130k 30 year mortgage at 5.25). I was in credit card debt for 7k I cut up my cards and no longer use credit cards or debit cards. Then I read a few personal finance sites. I keep a budget. I started an emergency fund. Last year I started a 401(k) which I put 20% of my pre-tax towards (I never knew I had to save for my own future!). I have a roth IRA that I put $150 a month into. I got the term life insurance. I do not have a car (I am visually impaired). I give to two children’s charity every month. My cc debt is now at 900.00 (soon to be $0). My savings isn’t great because I had a dental emergency that drained it. I am back on track though I am extremely frugal. I wanted to make more so I got a second job. I also sell works of art at various art shows for extra income. Am I missing anything? What else should I be doing? Thank you again!
September 19th, 2006 at 4:49 pm
Emily,
Sounds to me like you are taking a bunch of good steps. Congratulations.