Who Needs Life Insurance Anyway

Not normally the subject of water cooler talk, life insurance has been getting some attention lately as premium rates have been falling dramatically. That positive news comes against the backdrop of rather disconcerting report that one in three adults doesn’t own any life insurance. Granted, a large percentage of these adults are post-teens, recent college grads, and young adults many of whom can’t even imagine why they might need life insurance, so it’s not a subject to be discussed. Given the opportunity, however, to thoughtfully consider the question, “Who needs life insurance anyway?” even the “invincible” among us may consider differently.

Most Americans Know they Need It

For the two-thirds of adults that do own life insurance, their reasons are clear. Protecting their families against potential financial devastation due to the loss of a breadwinner is far and away the primary reason they buy life insurance. While this is their stated financial rationale, most people draw from a more deep rooted purpose linked to their devotion to their loved ones and their sense of responsibility to ensure that their survivors be able to live in the manner to which they are accustomed. For them, life insurance is an emotional purchase that provides all concerned with peace of mind.

There are also a growing percentage of adults who buy life insurance for more practical reasons. More and more people are starting family enterprises, businesses that provide current income for families as well as a legacy of financial security for future generations. Business owners are buying life insurance to ensure that their business will survive even in the event that the owner, a partner or a key employee should die prematurely. Life insurance provides the capital liquidity that businesses need to keep it going, buy out a deceased partner’s interest, or replace a key employee.

Many Don’t Know that They Need It

That still leaves millions of Americans who don’t own life insurance, or who have inadequate coverage to provide for the financial security of their families. While their reasons may be clear to them, their logic may not hold up to realities that most people face even if they are young, healthy and without family responsibilities. The fact is that the cost of life insurance has dropped so much in the last decade that a $500,000 policy can be purchased for less than the cost of twice-weekly Starbucks coffee for a healthy 25 year old. While that may not be incentive enough young adults to run out and purchase life insurance, there are plenty of other reasons why they should.

Health is a Fickle Thing

Many young adults are health conscious spending a fair amount of time exercising while watching their intake of unhealthy foods. But as people grow older, they tend to spend less time on their fitness, and their diets often run afoul of healthy guidelines. It is simply a function of the time that people are able to devote to health consciousness as their careers advance and their priorities change. Even for the healthiest of young turks, genetics has a way of disrupting the best laid plans. 70% of young adults will be afflicted at some point with typical age-related maladies such as hypertension, high cholesterol, weight gain, the onset of diabetes, and other common diseases. For many of them, their family health history will catch up with them.

When any of these factors are added to the mix, the cost of life insurance increases, sometimes dramatically. The cost of waiting to buy life insurance increases with age, but it can accelerate significantly when health issues become a factor. For some, the biggest cost is the inability to even obtain life insurance should their health become a serious issue. For a young, healthy adult, the best possible time to buy life insurance is the present, when it is the cheapest, and while they can still get it.,

Employer Life Insurance is only Temporary

Many young adults will pull the trigger and elect the life insurance option under their employee benefits plan. The election is typically some multiple of their income, which for many, doesn’t result in a significant amount of life insurance coverage. Still, they feel as though they have fulfilled their obligation to be responsible, so they won’t need to give any more thought to life insurance, or the realities of job security.

In today’s economy, there is no job security, and any employer-based life insurance coverage is temporary for the 50 to 60% of young adults who will be changing jobs or their employment status over the next twelve months. And, when it happens, their life insurance coverage will not be going with them. For those who land with another employer, there is a chance that their benefits package won’t include life insurance.

Young adults would be better advised to forgo their employer’s life insurance option, and instead, establish their own coverage for the purpose of protecting their insurability.

Do You have a Debt Wish?

The average adult has over $10,000 in debt obligations. For many young adults, that doesn’t include student loan obligations, nor does include a mortgage. The same sense of responsibility that makes people pay their obligations when they are alive should provide the same motivation to ensure that they can be paid after they die. In death, as in life, there are obligations and expenses that have to be paid. Final expenses alone can amount to thousands of dollars, especially it medical costs were incurred. For this reason alone, every functioning adult should own life insurance.

You’re going to buy it Anyway

Eventually the one-third of adults that don’t own life insurance will become part of the two-thirds who do, and they will buy it for the same reasons – for love, for duty to family, for all of the practical purposes. The problem many adults encounter is that, when they really do need to own life insurance, they may have trouble getting it. As discussed in the “Health is Fickle” segment above, adults can slow down the onset of age-related maladies; however, they can’t always stop them. And, if there is any family history of heart disease, hypertension, high cholesterol, cancer, or other genetic propensity for disease, it will catch up to many adults at some point. Plus, it is important to note that life insurers do consider family health history in their underwriting. Adults with a negative family health history stand a much better chance of getting a favorable rate if they apply for insurance when they are still young and healthy.