A financial question that most people ask at one time or another is, “Should I buy life insurance?” Understanding whether or not you should buy life insurance is one question you should reflectively think about early on, before feeling pressured to buy from life circumstances.
Confusion About Buying Life Insurance
If there is any financial consideration faced by most people that encompasses more confusion than others, it may be insurance. There are many different kinds of insurance that must be considered, but I want to focus primarily on just one issue here: buying life insurance.
Answering the question, “Should I buy life insurance, and if so what kind?” can be one of the most pressing dilemmas for a lot of us because it can often involve a lot of emotional considerations. This means that unscrupulous salesmen often can pull those heart strings to maneuver people into unreasonable decisions.
Unfortunately the result is the diversion of considerable amounts of money that could be used more effectively elsewhere. Consequently, when so much money is spent (or wasted) on life insurance, other important areas go neglected.
Why Should You Buy Life Insurance?
Experts who field questions about money are aware that the very first question to be answered before making any decision about buying life insurance often passes without consideration at all: why should I buy life insurance at all?. Often the right answer is, “No! I do not really need to buy life insurance.”
More often than not people ask what kind of life insurance they should buy rather than whether they need it to start with. Why? Commercials by insurance companies and common consensus among the uninformed have led an unfounded view that “everyone needs life insurance.”
EXAMPLE:
If you have reflected on this question yourself you may have observed a common situation. A man asks an insurance representative about life insurance.
- He is asked if he is married. He isn’t.
- Does he have any dependents? No, none at all.
- Does he have enough saved to pay for his funeral? Yes.
Still he is advised to buy life insurance.
Recently I was listening to Suze Orman taking a call from a woman who had no reason for buying life insurance at all. In addition she had considerable savings and investments.
Her so called “financial advisor” was actually trying to get her to buy a large whole life policy instead of contributing to her retirement funds! Suze was understandably angered by this charlatan.
When Should You Buy Life Insurance?
When I ask myself, “Should I buy life insurance?” the issue becomes one of identifying the motivation needed for buying a life insurance policy. Forget the notion that a responsible person is supposed to have life insurance. Nonsense.
Not only with life insurance, but with all forms of insurance it is critical to keep in mind the reason to spend money for that policy. A newer car needs coverage not needed as the car gets older. If the policy won’t pay more for repairs than the limited market value of the car what good does it do to pay for coverage that would be denied?
The same is true for people. When we get older we do not need the same life insurance coverage as we did when we were younger. My children are grown. They can earn their own way now so instead of buying life insurance to help my wife raise the children if I should die, it makes more sense to invest more for retirement.
How Should You Buy Life Insurance?
Assuming you do need to have some life insurance, how much and what kind should you buy. While term life is the only kind of life insurance I would recommend, I will examine that in more detail elsewhere.
My goal here is not to recommend any type of policy, nor any place to buy one. The purpose of this “understanding” article is limited to getting us to start thinking critically about insurance and guide us toward some sources that will help us understand how life insurance policies work.
One good introduction to life insurance can be found on the University of Missouri Extension site. Check out the article titled Life Insurance Purposes and Basic Policies.
Take time to get a basic understanding of life insurance needs and types before talking to any insurance representative, especially before considering a purchase.
Do the same with any other kind of insurance policy. Many are useless. Your goal is to understand what you really need and why before buying. Knowing that much, if not most, of the opportunities for buying life insurance out there are just barely legal and of little value can help us keep more of our money in our own pockets.
That does not mean you should never buy life insurance. Sometimes insurance is needed.
That determination is based on whether and how much others will be harmed financially by your death.
That is, are others dependent on your income, income that would no longer be available if you died. If you have enough savings to take care of them you do not need it. If you have no dependents you do not need it. If you have a couple of small children, a spouse who has few if any employment skills, and no significant savings, you need it.
Deciding About Buying Life Insurance
This whole question seems so simple and obvious it should need no specific attention. But the unfortunate truth is that a lot of people buy insurance they do not need every day. It helps the insurance salesman make a living but it does relatively little good and sometimes a lot of harm to the buyer.
To sum it all up, if you are considering buying life insurance, ask the question, “Should I buy life insurance?” with a skeptical mindset, and make sure you have a good reason to do so before buying. Then, buy only what you need so you can invest any other available funds or at least use them for something productive.
