So, one of the big questions we get is, “Okay, why do we talk about life insurance? Why is it so important and why does it have such a bad rap?” One of the reasons why it has such a bad rap is because it is one of the most aggressively sold and profitable insurance products out there. So, there are a lot of people that have a motivation to maybe recommend products that are not in your best interest. What we want to do is break down for you why do I need it, what are the different types, and how to approach making that decision.
So, Brian, the very first question about the bad rap is why do we need life insurance? Why is it something that we even talk about putting in place? Well, first we need to give some context on something because I want to go ahead and clear the air. Bo, in a former life, you actually sold some life insurance, yep. 100 years ago, I worked for a firm that did life insurance. But in the present form, we are fiduciary financial advisors. We do not sell life insurance. I think it’s important to give that background so there is some knowledge there, but our firm does not benefit from actually selling products. So, that’s why I think it gives some context that could be very helpful, especially on such an important question like why life insurance.
Yes, let’s talk about what can it do, what are the reasons people get life insurance. Well, it’s mainly because if there are people that are depending on you for their well-being, for their livelihood, then we would argue there is an insurable need on your life. If you are no longer here to provide, the insurance policy in place is supposed to step in and provide for your loved ones. The number one thing that we most often think about is if I can’t go out to work and create an income to pay the bills, then this life insurance policy will pay out to replace the income that I was earning for those folks that are depending on that income. That’s why I said at the beginning, if you have a spouse, if you have children, you need to pay attention. And by the way, if you’re the stay-at-home spouse that helps with raising the kids, you have a tremendous economic value that still is an insurable interest. So, you too probably need some life insurance on your life as well.
In addition to income replacement or replacing a role that someone might play inside the home, life insurance can also serve as a tool and a mechanism to pay off debt. Maybe if your income went away, your spouse would no longer be able to satisfy the mortgage, satisfy the car payments, pay the student loans, whatever that thing is. So, life insurance can be a fantastic tool to satisfy any outstanding obligations that you still have on this Earth while you’re living.
Well, and then the third thing we wanted to make sure we drew attention to was that life insurance can be a great way to fulfill the upcoming expenses or needs of loved ones. Think about if you want to pay for college for the kids and you’re worried about what if I left the Earth prematurely. It should be nice if they still got to go to college, if there’s some type of funding mechanism that can fulfill the obligations you feel like to your loved ones. This is the thing that you need to be looking into.
Now, look, there is a scary, scary stat that ties into this, Bo. The majority of people do think about this, but there’s a large chunk that doesn’t. It’s not quite 50 percent, but as you can see from the slide, 37 percent of parents with children under 18, meaning they have little ones, don’t have life insurance. Yeah, so we’ve established that you need life insurance if there are other people that are dependent on your income-generating ability or for stay-at-home spouses for the role that you serve in the household. Yet, here, almost 40 percent of folks don’t have that in place, and that’s dangerous. That’s essentially flying or jumping out of a plane without a parachute because we never know when our last day is going to come, we never know when we’re going to breathe our last breath. And the last thing we want to do is have our family not only having to deal with the emotional turmoil, the difficulty of losing a loved one, but also then all of the financial burden that comes along with that. Life insurance is a very effective and cost-effective way to remove that risk from a financial situation. So, we have effectively made the foundation that the lion’s share of folks probably have some type of insurable need. Yep.