Life Insurance

Life insurance is a big industry today. Many people buy it whether they need it or not. The primary purpose of life insurance is to replace lost income due to a death. If you are single and have NO dependents, you don’t need life insurance. You have no one to protect. About 30 percent of all policies sold are to people in this category. Who gets the money when this person dies? Someone who has not been financially dependent on that person.
If you don’t have enough assets to pay for your own burial and the burden would fall on your parents or another family member, then they would qualify as a dependent that you would need to protect financially in the case of your death. But you would only need a $5,000 - $10,000 term insurance policy, which costs a few dollars a year.
Children are the most over insured group, while they have no need to be. Life insurance should protect children; policies should be on the parents, not the kids. If the death of child would cause you to go into debt or cause a hardship, then it may be appropriate to purchase some cheap term insurance for a few dollars a year. However, only 1 in 100 children between age 1 and 18 will die each year (10.5 per 1000). The odds are definitely in favor of the insurance company.
There are many reasons people feel inclined to buy policies on their children. One is “guaranteed insurability,” a gimmick created by insurance companies. You are told that buying a policy while the child is young guarantees his or her insurability later if the child has an incurable disease or becomes disabled. The odds of this happening are even lower than those of the child dying before reaching the age of 18. The “guaranteed” clause seems logical, which is probably why it’s the biggest reason parents buy insurance on their children.
Buying a policy on your child to cover his or her college education is another gimmick. The cash value probably won’t build up enough to pay for college; besides, why would anyone want to give an insurance company their hard-earned money for 18 years and pay commissions, fees, mortality charges, et cetera, and receive a low rate of return?
Finally, insurance companies may say that buying a policy on a child when he or she is young will lock in low lifetime rates. However, insurance costs on new policies are declining as people live longer and longer. I bought a term policy about eight years ago and am amazed at how much cheaper a new policy is today, even though I’m nearly a decade older.
If you have a policy on your child, the rates won’t be adjusted downward as policy rates in general go down; the investment return on your policy won’t increase, but the investment yield on the insurance company’s investments will increase; and insurance premiums per thousand are decreasing - more protection can be bought today for less, compared with policies purchased years ago.
When buying life insurance, the important question to ask yourself is: what impact would a death have on the money coming in? If the survivors have enough income, then you don’t need insurance. You may want some (for emotional reasons), and that is fine, but you don’t need any (for financial reasons). Please keep this distinction in mind.
With most people, there is always a discrepancy between the maximum insurance wanted and the minimum of insurance needed. Consider comfort level, what you can afford and your needs Life insurance was never intended to fill a permanent need. If you are saving money on a regular basis, putting money into a retirement plan and paying off a mortgage, these factors will change how much insurance you need and at what point you might not need any at all.

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