Do I Really Need Life Insurance?
There are some things in life that I would never go without. Some things are so important that whenever they run low, I make sure they are replaced. Coffee is one. Gasoline in my car is another.
Could you imagine driving your car, seeing that the gas gauge was on empty, and wondering if you should fill the tank? I don’t mean wondering if you could delay filling the tank. I mean never filling the tank again. That would be crazy, wouldn’t it? It is inconceivable to me that I would ever voluntarily stop putting gas in my car.
Everything in life is not so certain, however, and the need for life insurance is a good example.
Many people feel like they should have life insurance but they really aren’t sure how much they should carry or what the best kind might be.
These are good questions but finding the answers can be difficult. This is because there are many conflicting opinions and ideas about life insurance.
To help cut through the confusion and clutter, I thought I'd share my “philosophy of life insurance” with you.
Let’s start with what it is.
Life insurance is a vehicle that is designed to replace the income of a person who dies prematurely or unexpectedly.Click here to read more. While young people are typically the last to think about premature death, it is precisely the “unexpected” nature of an early passing that makes life insurance more important.
This kind of loss is particularly devastating when we are young and just getting started in life. This is because when we are young, money is usually tight. There is never any excess. And if one spouse were to die and their income were lost, it would create a tremendous strain on the family budget.
The surviving spouse would be forced to grapple with all the expenses of raising the children. Think about it: food, shelter, child care, not to mention the “extras” like dancing, little league, and band. Even if a spouse had elected to stay at home with the children, the surviving spouse would have to consider the cost of added child care and other responsibilities of the deceased spouse. They are called dependents for a reason. The list goes on and on. And don’t forget about the biggest child rearing expense, college.
Another burden a young widow or widower would face is paying the mortgage. After all, when we buy a house, it’s common to buy as much house as you can afford based on both your salaries. If the surviving spouse were unable to continue making the payments, the family might be forced to move out of their home. What a tragedy that would be. Especially after the recent loss of their spouse and parent.
It's also common for a young couple to have very little in savings, if anything at all. This lack of a financial safety net can create a dynamic where the surviving spouse bounces from one financial crisis to the next. Constant financial crisis may mean that saving for retirement can be neglected, having a serious negative impact on the prospects for an early or comfortable retirement.
So, I think we can all agree that it’s important to carry life insurance when we have a young family.
But as the years go by, things change. Hopefully the kids grow up and become responsible adults. Maybe at some point in their twenties they will be self-sufficient and no longer need our support.
Another thing that changes is that the mortgage gets paid off. If not completely paid off, it gets closer to being paid off. Now if one spouse were to die, it is less likely that the surviving spouse would lose the house. This is a wonderful thing.
And finally, if we have been contributing to our 401 K's, our tiny retirement nest egg should have grown into a much larger asset. It could be that our nest egg is now large enough that if one spouse passed away, retirement would not be in jeopardy for the surviving spouse.
If you find yourself later in life with the circumstances I described above, I think it's fair to ask, do I really need life insurance anymore? Do I really need to keep paying these premiums?
The answer could be no. It could be that you don't need to continue paying those premiums and carrying that coverage.
Sure, it was important to have life insurance when your family was young, your mortgage was big, and your savings was nearly non-existent. If the opposite is now true, you might be better off putting those resources to work in other ways.
Watch for future posts where I will explore these opportunities.
So, as I said in the beginning, there are some things I would never dream of giving up such as gasoline for my car. But life insurance is different. For the average middle-class American, life insurance is something you only need for a certain season in your life.
Over time, life insurance becomes less like the gas you put in your car and more like the minivan you were forced to drive; until you no longer needed it.
If you would like some help…
Peter Hafner is the founder and President of the Hafner Financial Group,a Buffalo, NY based Financial Planning and Investment Advisory firm that specializes in helping middle class families throughout the United States plan and execute successful and happy retirements.
Click here to get a copy of 6 Steps to Your Dream Retirement.
If you would like to learn more about how the Hafner Financial Group could help you, please visit our website at HafnerFinancial.com. Or you could send us an email at info@HafnerFinancial.com, or call us at 716–650–4151.