Do your really need Life Insurance – No

The simple reality is that life insurance is a business. A profitable business. Profit generally means that the entity that is profiting does so by taking more money than they return to policyholders. A lot more. Generally speaking, most people don’t need life insurance. Those are folks that are typically single, young, and have no children. Young married couples, as a rule, are wasting their money.

The problem with life insurance is that those who sell it, love to prey on the fears of their customers. They’ll spin incredible yarns about how your poor family will suffer the consequences, go broke paying your bills. If in fact you are liable, bankruptcy protection has always been available.

Here’s the plain truth. If you were worried about someone picking up burial expenses, you could obtain a small policy. If you are involved in a business and the death of your partner might put your business in the hands of an uneducated estate, or if you already have so much money that you need to protect the inheritance from tax loss, you might get a policy to approximate the loss as part of estate planning. There are some other unique situations where obtaining life insurance might be a good idea but those are tailored and situation specific to an individual. For the vast majority of healthy people, particularly those who can live on one income if they absolutely had to, life insurance is simply a waste of money. An obligation that once you start paying premiums, you can never stop or you’ll lose what you’ve invested.

I used to be a licensed life insurance agent, selling primarily term life. Once, I had a client who had died. His spouse was unaware that he even had a policy because the premiums were being dutifully paid for by his mother for nearly a year after his death. The credit life was part of the loan she was paying. I stumbled onto the situation and eventually the guy’s wife was paid the 25,000 that the policy called for. I often wondered after that episode with what frequency that situation happens. I can’t imagine it happens very often.

Life insurance has a few applications. As a general rule, most people simply don’t need it. It is not a good investment unless you have some spare money laying around and no idea what to do with it. The next time a life insurance agent comes calling, tell him you want some death insurance instead. Ask him if the high divorce rate has contributed to the growth of his company. Most folks would be far better off setting aside their own money, investing it, have control over it, and let the power of time and compounding do the rest. And if you run short of cash, you’ll still have your investment-unlike many policyholders who let the coverage lapse and discover that insurance companies don’t give refunds.