Along with emergency funds and online bank accounts, life insurance is one of the most talked about topics of the whole personal finance blog-o-net, a long hyphenated word that I just made up. It seems like every 4th post is a list of the benefits of life insurance, usually with an affiliate link or two, because bloggers gotta get paid too.
I can understand why everyone is so high on life insurance. Imagine you’re a 30-something guy, who lives a pretty normal life. You’re got the average 2.3 kids, along with a wife who only works part time because she’s busy taking care of the kids and the house. You’ve got a mortgage and a car payment, even though you should really be saving up to buy your cars in cash. Basically, if you live a normal middle class existence, you’re pretty much screwed if you kick the bucket. You wouldn’t really care, because you’re, you know, dead. Still, it would be a bummer for your wife.
So, like so many others, you buy life insurance. Because you’re intelligent, (probably from reading this blog) you buy term life insurance, since having insurance attached to an investment product is generally a bad idea. Since everybody already knows that term insurance is best, let’s move on to a slightly different topic, one that’s rarely discussed. There are certain people who shouldn’t have life insurance. Just who are they?
Single, No Dependants
Since you guys clearly care about my life so much, let me give you some more details. I do this under the assumption that none of you will track me down and stalk me. I don’t want to have to get a restraining order. Again.
I’m a single guy, since the ladies keep rejecting my awkward advances. I own a house, along with some RRSPs, individual stocks, and some other investments that I’ll keep vague. If I were to get hit by a bus tomorrow, it would be a bummer for at least a few people. While people would care if I were to die, it wouldn’t affect them financially at all.
I easily have enough liquid cash to cover the cost of a funeral. I have a will, which gives directions on how my estate would be divided if I were to die. I have given power of attorney to the executor of my estate, meaning they could withdraw the cash needed to give me the fancy casket. Hey, I want a comfortable eternity.
The point is, as long as nobody cares financially (that’s the key word here) about your untimely death, then why would you insure your life? To give money to people who either don’t need it or should be making it themselves? I’d argue that’s a pretty poor use of insurance.
Besides, the chances of me kicking the bucket even in the next decade is pretty slim. Because of that, I’d have a pretty small insurance premium. I’d rather pay nothing, and then reevaluate in the future.
This one isn’t as cut and dry as my argument about single, no dependent people, but I still wouldn’t buy life insurance for a child.
This isn’t because I don’t value children. It’s because, strictly from a financial standpoint, they’re liabilities. They eat your food and maybe even drink your beer when you’re not looking, if they’re older kids. While it’s always a tragedy when a young person passes prematurely, it actually lessens the financial burden on the parents. No longer do they have to feed, clothe and entertain the child. The parents would obviously still like the kid around, that much is certain.
There is a legitimate argument for buying a small term policy for a child. Losing a child is a horrible thing that no parent wants to go through. If there’s a financial buffer (provided by insurance) the parents can take a few weeks off work and not have to worry about money as they recover. While I’d rather see someone have enough in savings to get through a rough patch, insurance can serve as a welcome reprieve.
Life Insurance Isn’t For Everyone
For the majority of readers out there, life insurance is a good idea. Even though the event of your untimely death may be unlikely, it’s a good idea to make sure your dependants are taken care of in case it ever happens. The benefits can far outweigh the costs, which is sort of the whole point of insurance.
But, if you’re a single person with nobody to take care of, maybe you should reconsider your decision to get life insurance, at least for a little while.