Do I Need a Life Insurance Policy? Why You Do, and Why You Don’t

Written by: David Landry

Would you consider leaving your family broke and homeless if a disaster hit and one of you died being prepared? When considering the need for insurance, to most it is as certain as death and taxes. There are several kinds of insurance policies, including dental, health, car, home, etc, and almost all are sought after no matter what. One exceptional policy that remains purely discretionary is life insurance. Life insurance has both positive and negative connotations amongst the American public for many reasons and all too often after budgeting for all of their other insurance policies, many Americans neglect life insurance as they see it as unnecessary. But is this a healthy opinion?

Life insurance has been around in one shape or form since Ancient Rome, and possibly even predates that empire. Today, however, life insurance is primarily used as a means of providing for one’s family if they meet a premature death. It is not a savings account that can be drawn from during the policy holder’s lifetime. The beneficiary will receive the payout once the policy-holder dies, but only under the right circumstances. There are a few types of policies, but generally all of them will only payout for natural and unplanned deaths. If the policy holder kills themselves, insurance companies will not honor their investment. The first type of policy is ‘Term’ and means that a set number of years is decided in which the holder must die or else the policy-holder relinquishes their investment.

‘Whole’ or ‘Universal’ plans are permanent plans, meaning that they will provide coverage regardless of when the policy-holder dies. The two plans differ in the flexibility of their payments/payouts/savings elements, but generally speaking they are for individuals who want to secure funds no matter what. These plans are also unique because a policy-holder can borrow against the cash value of their loan which can be seen as favorable, however it means that your policy needs a high cash value.

Anyone can take out a life insurance policy, however, it is intended for people with dependants. In the case of being a young parent with a middle-class income, the importance of life insurance is much higher than, say, a retired adult with grown up children. The policy can be life saver for young families as most would struggle to maintain their standard of living without the head of the family’s income. Younger people are also obviously less likely to die soon than the elderly, so their payments are typically much less, making their policies fairly affordable.

In addition to helping one’s dependants by proving an income stream, life insurance policies are also marketed as a means of covering funeral expenses and personal debt. Anyone at any age does not want to burden their family with funeral costs and personal debt if they aren’t in a position to afford it so many people decide to purchase life insurance for this purpose. Many plans will cover the costs of the funeral immediately, unless the policy is too small. Also, if a young person were to die with a large amount of college debt, a life insurance policy could go a long way in mitigating those costs for their bereaved parents.

Life insurance, then, can undeniably be seen as a very useful purchase under the proper circumstances. But when is it not practical? Typically, life insurance policies are deemed unnecessary when the individual either has enough wealth that their family does not need the coverage or when your children are financially independent adults. In these cases, it is more practical to use a will to distribute your wealth as no one is dependant on a life insurance payout.

If you decide to purchase life insurance, always take care to consider all the factors contributing to a policy decision, i.e number of kids, kids ages, personal wealth, etc. There are too many hypothetical legal issues to enumerate, so do your research to better protect your family and your money. Also, just like any insurance purchase, you have to trust your provider as there are many scams that take place, especially scams targeting the elderly as detailed by Sheryl Nance-Nash in her article “How To Manage Your Elderly Loved One’s Money” for www.DepositAccounts.com.

As mentioned, there are both positive and negative views of life insurance for a reason that most arguably stem from unforeseen contractual complications, or lack thereof. So before engaging in the process of obtaining a life insurance policy, determine if A) you have immediate dependants that will benefit from the inheritance, and B) you will most likely have expenses and debts that will need to be covered post-mortem. As with any financial move, refer to the guides and articles on americanpreppersnetwork.com for further advice.

Dave Landry Jr. is a personal finance manager and small business owner located in Southern California. He enjoys writing blogs and creating infographics in his spare time on topics ranging from insurance, investing, banking, debt management, saving and frugality. He hopes this article will help you determine whether taking out a life insurance policy is right for you or your loved ones.