Life Insurance
I did an online focus group on life insurance the other day. It's my first time doing an online focus group and it was a good experience. I especially note that I think a focus group is a lousy method to get at lots of kinds of information. The 90 minute focus group with 6 people would have yielded much more valuable information if it consisted of 10 minute interviews with the same people.
But it got me thinking about life insurance. I mentioned that now that I am not the breadwinner for my family, I am considering dropping my life insurance. Everyone yelled at me. I had a hard time articulating my position, which frustrated me. So I'm going to articulate my position now:
Life insurance can serve many possible functions:
Insurance to replace actual costs:
1. Income replacement--designed to replace the actual lost income from an income-provider, including lost future income
2. Retraining costs--designed to subsidize educational costs until the surviving spouse can obtain an education/training that will allow them to support themselves
3. Caregiver replacement--designed to replace the actual cost of replacing an unpaid caregiver
4. Death costs--designed to cover the actual costs of the funeral
Insurance to try to make up for the emotional loss of a family member, above and beyond actual replacement of any lost income from the deceased:
5. "Grief insurance"--designed to allow a working person to basically take paid time off after the death of a family member to grieve
6. Gift--designed to give a gift to a loved one--like the mortgage paid off, their student loans paid off, free college, etc.`
I explained to my focus group that I got life insurance when I was the breadwinner of my family and my husband and daughter were dependent on my income. I got life insurance so that my spouse could provide a high quality of life to our daughter while he was finishing school. I got life insurance because there was a good chance that I would be the breadwinner for our family long-term if my spouse didn't finish school, and I wanted to be able to adequately provide for him and my daughter.
But now my spouse is graduating. And he will no longer be dependent on my income. My extended family would provide caregiving if I were unable to do so. So life insurance is no longer necessary for me. Sure, it might be a NICE thing to do: to give my spouse some (basically) paid time off of work to grieve if I died, or to give him a gift of a mortgage-free house or his student loans paid off, but those are not NECESSARY expenses. They are gifts. He is already not counting on me to contribute to the mortgage or his student loans, so why would he count on me to provide these things after my death?
The focus group yelled at me. One woman explained that she is the homemaker in her family and doesn't work, nor does she plan on ever working, but she has just as much life insurance out on her as out on her husband. She explained that she wants her children to be able to go to college. I didn't say this at the time (because it would have been rude), but my response was something like, "you're not contributing financially toward your children's college education NOW, why do you think you need to do so after you've died? Obviously, you're making some other kind of plan to pay for their college now, and that plan does not involve you financially contributing anything...why does this change after your death?"
I think that life insurance companies have tricked us. I think they have distorted us into confusing "income replacement" life insurance (which can be any of the first four items, including caregiving replacement), with "gifts," which are not really designed to replace any lost income. These are really different things. While it certainly NICE to leave gifts, it is not IRRESPONSIBLE (the word used to describe me) to not do so.
The life insurance should also be distributed to different people based on anyone who has cosigned loans/debt with you. For example, if you parents cosigned a $50,000 private loan for your schooling, then a portion of your life insurance should go to them. Presumably, a portion of your income would have gone to them (say, 5% or 10%), so it makes sense that the same amount continue to go to them. No EXTRA life insurance is needed to cover debts. Those debts would have been paid for already out of your income, so life insurance that replaces your income will cover the debts. I suppose if you are really irresponsible and you have debts that you do not have the income to cover, you will need life insurance to cover those debts, above and beyond replacement of your income.
I read somewhere about an unmarried woman without children who got life insurance to cover her student loans after she died. This is dumb. As long as no one else cosigned on her student loans and she doesn't have a spouse, they are forgiven after her death.
But it got me thinking about life insurance. I mentioned that now that I am not the breadwinner for my family, I am considering dropping my life insurance. Everyone yelled at me. I had a hard time articulating my position, which frustrated me. So I'm going to articulate my position now:
Life insurance can serve many possible functions:
Insurance to replace actual costs:
1. Income replacement--designed to replace the actual lost income from an income-provider, including lost future income
2. Retraining costs--designed to subsidize educational costs until the surviving spouse can obtain an education/training that will allow them to support themselves
3. Caregiver replacement--designed to replace the actual cost of replacing an unpaid caregiver
4. Death costs--designed to cover the actual costs of the funeral
Insurance to try to make up for the emotional loss of a family member, above and beyond actual replacement of any lost income from the deceased:
5. "Grief insurance"--designed to allow a working person to basically take paid time off after the death of a family member to grieve
6. Gift--designed to give a gift to a loved one--like the mortgage paid off, their student loans paid off, free college, etc.`
I explained to my focus group that I got life insurance when I was the breadwinner of my family and my husband and daughter were dependent on my income. I got life insurance so that my spouse could provide a high quality of life to our daughter while he was finishing school. I got life insurance because there was a good chance that I would be the breadwinner for our family long-term if my spouse didn't finish school, and I wanted to be able to adequately provide for him and my daughter.
But now my spouse is graduating. And he will no longer be dependent on my income. My extended family would provide caregiving if I were unable to do so. So life insurance is no longer necessary for me. Sure, it might be a NICE thing to do: to give my spouse some (basically) paid time off of work to grieve if I died, or to give him a gift of a mortgage-free house or his student loans paid off, but those are not NECESSARY expenses. They are gifts. He is already not counting on me to contribute to the mortgage or his student loans, so why would he count on me to provide these things after my death?
The focus group yelled at me. One woman explained that she is the homemaker in her family and doesn't work, nor does she plan on ever working, but she has just as much life insurance out on her as out on her husband. She explained that she wants her children to be able to go to college. I didn't say this at the time (because it would have been rude), but my response was something like, "you're not contributing financially toward your children's college education NOW, why do you think you need to do so after you've died? Obviously, you're making some other kind of plan to pay for their college now, and that plan does not involve you financially contributing anything...why does this change after your death?"
I think that life insurance companies have tricked us. I think they have distorted us into confusing "income replacement" life insurance (which can be any of the first four items, including caregiving replacement), with "gifts," which are not really designed to replace any lost income. These are really different things. While it certainly NICE to leave gifts, it is not IRRESPONSIBLE (the word used to describe me) to not do so.
The life insurance should also be distributed to different people based on anyone who has cosigned loans/debt with you. For example, if you parents cosigned a $50,000 private loan for your schooling, then a portion of your life insurance should go to them. Presumably, a portion of your income would have gone to them (say, 5% or 10%), so it makes sense that the same amount continue to go to them. No EXTRA life insurance is needed to cover debts. Those debts would have been paid for already out of your income, so life insurance that replaces your income will cover the debts. I suppose if you are really irresponsible and you have debts that you do not have the income to cover, you will need life insurance to cover those debts, above and beyond replacement of your income.
I read somewhere about an unmarried woman without children who got life insurance to cover her student loans after she died. This is dumb. As long as no one else cosigned on her student loans and she doesn't have a spouse, they are forgiven after her death.