Do you really need life insurance?

April 22, 2018

Financial advisors are required to look at the big picture in assisting clients with planning for the future. Sometimes, this means recommending strategies that clients don’t want to discuss. Life insurance is one of those strategies. Most clients I dealt with as an advisor were interested in making money. They were searching for a rate of return. The last think they wanted to discuss was their death. This tends to be why many advisors avoid the subject.

Do you really need life insurance?

Let’s rephrase the question. Life insurance is protection against the financial loss caused by death. So the real question is, is there anyone who relies on you financially, and what would happen to them if you were to suddenly disappear tomorrow. If the answer is that they would be in financial distress, then you have your answer. If no one would be hurt financially by your premature death, say you are single, no kids, no family, then the answer is probably no, you don’t need life insurance.

Another way to word the question though is ‘do you need to purchase an insurance product from an insurance company?’ If you have a spouse that does not work, and a bunch of kids, you would assume you need insurance. But, if you already have considerable liquid assets that would be more than enough to cover your family’s expenses should your income disappear, then again, you probably don’t need life insurance. Maintaining a large amount of liquid assets could be considered a forms of self insurance.

If you are reading these words, you have already shown interest in the concept of life insurance which most likely means you probably should consider at least some protection. I’ll cover the various types of insurance products in other articles.

Buying any type of insurance policy is a form of gambling. You don’t want to crash your car, or destroy your home, or die, but you know these things are possible, so you insure yourself. The insurance company is banking on the likelihood that nothing will happen and while you don’t want these terrible events to happen to you, you are buying the peace of mind of knowing that you or your family will be taken care of should they occur.

Your greatest asset is your future earning ability

In my financial career, I have met many people who don’t want to talk about life insurance because they feel it is a morbid topic, it is bad luck. Another statement I hear a lot is “I am worth more dead than alive”.  I honestly don’t see how preparing for worst case outcomes in life could be a bad thing, and no, you are not worth more dead than alive. Look at it this way. How much are you going to earn over the course of the rest of your life?