According to www.nerdwallet.com, "Parents need life insurance to a certain extent. Again, it’s an question of dependence. If your kids rely on your salary for food and shelter, get life insurance. But if they’re college kids on the brink of independence, they might be okay without your post-mortem support."
According to askthebusinesslawyer.com and www.ocregister.com, "Life insurance on the partners in a business can be an effective way to ensure that the business survives the death of a partner and provides funds to the beneficiaries of the deceased partner."
In both of these situations, it is important to discuss the alternative. Imagine your kids are young and something were to happen to you or your spouse. What would happen to your children? Imagine you just invested your entire life savings into a business partnership and something were to happen to you or your business partner. What would happen to the business? These are difficult questions to ask but good friends will ask you difficult questions because they care.
Have you ever heard a whole life insurance agent ask, "What happens if you live?" Let's quickly answer this question. Well, if you live, you should be paying off your debts including your mortgage. You should be saving money to pay for retirement. Your kids will grow up and start becoming independent. If you live, you will have no damage to your family financially, because you will be there to take care of them!
With life insurance, you are simply planning for likely scenarios, living and dying. While life insurance is a piece of the puzzle, you really want to make sure your family is taken care of in either scenario.
According to www.livescience.com, "A 20-year-old U.S. woman has a 1 in 2,000 (or 0.05 percent) chance of dying in the next year, for example. By age 40, the risk is three times greater; by age 60, it is 16 times greater; and by age 80, it is 100 times greater (around 1 in 20 or 5 percent)."
So the question is, if you are a 40 year old woman and you know you have a 1 in 666 chance of dying in the next year, should you cover yourself with life insurance? Assuming the risk is 1 in 666 over ten years (although the risk actually increases), you can calculate the probability that you live over the next ten years. This probability is (665/666)^10=.985. This means at least 1 out of 66 (66-100/1.5) women who are age 40 will die over the next ten years. Is it smart to purchase a life insurance policy to cover this high risk to protect your family or should you gamble with your family's future on the fact that you will live?
If you purchase a term life insurance policy, what happens when your term is up? Are you concerned about losing the chance to pay for life insurance? Who do you think is making money on a life insurance policy, you or the life insurance company?
Some people think that they should own a whole life insurance policy, aka a permanent insurance policy because they are worried that they will lose the chance to be covered when the term is up. As a savy planner, you should be making calculated decisions about your financial future.
That is, when your life insurance term is up, you should be making plans to save enough money to cover the expenses needed. Suppose someone is retired and has no income, should that person have a life insurance policy? The answer is no because the purpose of insurance is to spread a risk to a larger group of people. In the case of life insurance, the risk is the loss of income if a person were to pass away. If they have no income, there is no financial risk. While the person's family may be affected emotionally, they will not be hurt financially.
According to www.investopedia.com, life insurance is: "A protection against the loss of income that would result if the insured passed away."
Do you agree that the purpose of a life insurance policy is to cover the risk of losing the income which would be generated by the insured person?
There is a really great article at economics.sas.upenn.edu. The statistics shown here are all from this article.
"According to Life Insurance Marketing and Research Association International (LIMRA International), 78 percent of American families owned some type of life insurance in 2004."
"In the United States at year-end 2008, 54 percent of all life insurance policies in force is
Term Life insurance."
"Of the new individual life insurance policies purchased in 2008, 43 percent, or 4 million policies, were term insurance."
This means that a majority of people are now looking at term life insurance. Of the American families, 22% seem to remain unprotected, about 38% are unproperly protected with whole life and 40% are protected with term life insurance. The big companies out there have obviously taken advantage of the public for too long. With financial education rapidly reaching those who need it, we are in for a good run.
For those of you who continue to read, you should be proud of yourself. Remember to take several different opinions from various sources and to use logic when sorting through the various arguments.
If you were to die prematurely, would anyone's life be dramatically changed financially? This is a simple question. If the answer is yes, congratulations, you need life insurance! If you answered yes, and you are researching and taking action to purchase a life insurance program, congratulations, you are a responsible adult.
So, how do you find a good program, with all of the programs out there? Well, like Suze Orman and Dave Ramsey, I advocate only term life insurance. And by the way, not all term is the same. Do some research so you don't get stuck with a bad program. Check out this clip on You Tube to see how fired up Suze gets about the whole life insurance industry.
Here are three possible scenarios:
1. Now, let me clarify this a little. If you are a student and have student loans, where a burden like 100K might fall onto your parents if you were to die prematurely, it might be good to get some coverage. Of course this depends on how well off your parents are. If they are multi millionaires, would 100K hurt them and have a dramatic impact financially?
2. Now, suppose you have a business partner and you have invested hundreds of thousands of dollars into the partner based on a huge profit potential. Well, then, you may want to insure the partner and your investment in the partner with some cheap term insurance.
3. The biggest, reason, however, would be if you are married and have small children that depend on you, you need life insurance. The reason is because the family is very likely to be destroyed emotionally and you have a responsibility to protect them financially.
In my family, this dramatic devastation happend to both my grand mothers and one of my first cousins who is absolutely amazing. It happens and we need to think about it folks!
Read more about the difference between term and whole life insurance here.
