When you’re looking at life or health insurance, it is often common sense to plan for the worst that life can throw at you. Usually, a life insurance policy can be purchased for cents, if not fractions of cents on the dollar to offset a huge financial risk. Why then, when the risk is obvious and the facts are clear, do so many people justify not buying life insurance?
This article will take a look at a few common reasons people use to justify NOT spending money on a life insurance policy.
It won’t happen to me
Some people seem to have divine insight. They believe they know what life holds for them, and that they will not get sick, hurt or die until some appointed moment, deep into old age, preferable peacefully in their sleep. The truth is no one knows when they might die, get injured or have a life altering illness. The probability it could happen to you is about 10% chance of death before age 65, 1 in 3 chance of a critical illness before age 65, and 1 in 2 chance of a period of long-term disability during your working career. Those statistics hold true across the entire Canadian population, and no one is somehow immune from risk.
I can’t afford insurance at the moment
If you are on a very tight budget, the monthly premium for life and health insurance can often been seen as a discretionary expense. If things get tight, I’ll just cancel and get insurance again when I’m in better financial shape. The truth is the life and health risks we all face do not occur only during our “good” times. In fact, the impact of a breadwinner or caregiver’s death, injury or illness during tough financial times is magnified tenfold if it ever happens. When you are on a tight budget and there is lots of financial stress, this is the MOST important time to have your life and health insurance in place.
I’d rather save the money than pay it to an insurance company
This justification is far too common. Many people general dislike financial institutions like insurance companies and don’t want to spend their hard earned money on insurance premiums. Maybe the math seems to work out on paper better. If you saved $100 per month (your monthly premium for instance) for the next 40 years you would have $350,000 in the bank (8% annual interest). Sure, seems reasonable, but what about your life and health risks along the way. If you feel you would be financially secure with that kind of money in savings far into the future, what would happen to your nest egg if you got sick half-way to your goal? After 20 years, you would only have $58,700 saved in something like an RRSP. That is only 17% of your way to the goal. Liquidating money then would mean your retirement/savings plan will never recover. Remember, the likelihood of critical illness is 1 in 3 and disability is 1 in 2 – those aren’t very good odds. If you died then all bets are off, and those that you love and who rely on you lose everything, permanently!
My spouse will remarry
This illogical reason always seems to me like deflecting or turning a blind eye to the real issues. As an insurance agent, I’ve never been able to deal with this reason well in person. Is it a sign of marriage troubles? Does the husband (it’s usually the husband that says this) really believe his wife can snap up another mate to pay the bills? The truth is a spouse left behind with debts, a mortgage and children isn’t very marketable on the dating scene. How many financially stable, caring, compassionate middle aged men are out there looking to marry a middle aged woman with debts and kids in tow? The choices are few and far between. Unlike divorce, where there is child and spousal support paid, death of a breadwinner leaves the other spouse and children with nothing! Unless Mom finds a sugar daddy and quickly, the family might be on welfare in a matter of months.
My group insurance at work is enough
If you are lucky enough to have a group insurance policy that pays maybe 2 times your salary if you died, that would seem like a lot of money. If you made $75,000 per year, your group insurance is worth $150,000. Is that enough life insurance? Frankly, you would be very UNDER insured in this situation. The general rule of thumb is people need 7 to 10 times their gross income in life insurance during their working/raising a family years in order to be properly protected. If you died, and your spouse got $150,000 tax free, lump sum, how long would that last? If the costs of running your house are $5,000 per month, and your spouse can only bring in $1,500 working part time, then they would have a $3,500 monthly shortfall. Even if this capital was earning 6% interest, the cash would be gone in 4 years. If you have small children, you need to make sure there is at least enough capital to last until the youngest is financially independent. You group insurance plan was never mean to replace your own personal insurance planning.
The insurance company won’t pay the benefit
This reason is just bad press for the insurance companies. Some people truly believe that a life insurance company will try and NOT pay out a claim, and make the beneficiaries jump through hoops to get paid. If this was the case, life insurance companies would have been out of business years ago when the consumer understood it was all a scam. In fact all Canadian life insurance companies combined pay out billions of dollars each year in death, injury and sickness claims. To stay in business they do need to collect more premiums than they are paying out in claims, that is true. That is why insurance policies are price accordingly so there is always enough money in the collective pool to pay for any member of the group who might die, get sick or injured. There is an important point to make here. When you are applying for life insurance you need to be up front with all your health conditions, be honest with your insurance advisor, so that you can be properly underwritten. Hiding information from the insurance company, or omitting key facts about your health or dangerous occupation, could put your insurance claim in jeopardy. If you are completely honest when applying for coverage, and you have a good insurance advisor who knows how to do excellent field underwriting (that is taking a high quality application to send into the insurance company), you can be assured your insurance is rock solid, and benefits will be paid.
I hope these “illogical” justifications for not buying insurance made sense to you. For some people, these thoughts or ideas seem to make perfect sense at the time, but they are misguided thinking that will leave you and your loved ones exposed to huge financial risks. Please take the time to think over your need for life and health insurance, and then protect yourself and the ones you love.
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