Life insurance is needed if you are not a Donald Trump or George Soros. In the case of the latter there is more than enough money to go around after they die, neither the inheritance nor the amount sufficient to cover life’s contingencies are in doubt. But if you are not a billionaire or millionaire, life insurance is a good hedge against your children (or other beneficiary(ies) suffering financially after your death. Even if you do have a million dollars to bequeath those who will receive the money after your death, there may be unexpected, or expected, repercussions as a result of needs greater than the money will allow.
The argument against this thesis may go like this – The children, or other beneficiaries, (excluding charities other non-individual recipients) should have to work for their livelihoods.If they are left too much money they will become lazy and reliant on the ‘handout’ of the money they received outright or through a trust.
A million dollars sounds like a lot, and for one, or two people it is. $1,000,000.00 or $500,000.00 is a lot of money. Break it down to 3, 4, or even more beneficiaries and it is not much, at least in the long run, or potentially not even in the short run.
Let’s look at a family with 4 children. The father leaves one million dollars or $250,000.00 per child. Three of the four work. The fourth is disabled. In addition there is an estrangement between the first 3 children and the 4th.
Her insurance costs $6,000.00 a year (not including premium increase.). In 10 years the amount is $190,000.00 It still sounds like a lot. But she has no income but disability. The $190,000.00 has to pay for the majority of her living expenses including medical expenses not covered by insurance.
It also pays for rent, let us use $1,100.00 a month or, not accounting for rent increases, 13,200.00 a year or $132,000.00 over 10 years. The residual is now $58,000.00, but we have not included the uncovered medical costs which may cost $20,000.00 – 30, 000.00 (or more) over the 10 years. That now leaves us $20,000.00 or $800.00 more than one more year of rent and insurance coverage.
Since the other siblings do not help her that is all the money there is. Absent death she will have to rely on the state to help her financially.
But, had the parent bought life insurance the amount of money left, for all the children, would have been greater and the fourth child, who depends on that money to live, has at a minimum, a few more years of known income.
It is not the most common scenario but the point is the same. If the children can work then the money is a nice little plus. For any children that are unable to work, for whatever reason, or bring in a good enough income to support him/herself as well as a possible family, life insurance is the best gift a parent can leave behind.