Life insurance is a fairly simple product.  You die and someone gets a check. There is no doubt about it, you are buying it for someone else.  What I hear from young people is, “I don’t need it.  If I have an accident and die just bury me in a box out back.”

First off, it’s illegal to be burying people out in the backyard.  Second, a real burial and memorial service can be costly.  If you don’t have life insurance someone else will be straddled with the bill.  That’s not very responsible of you.  You need to have some provision for paying those expenses that won’t financially stress those you leave behind.  Plus there may be some medical bills left over that your survivors will need to pay.

Having a Will and saving some money that is in a trust that can be used for these kind of purposes is one of the only legitimate alternatives.  And it is a legitimate alternative.  However, it takes a long time to save enough money and if you pass before you have saved up enough then, KABAM!  you are back to leaving those expenses to someone else.

Now here’s the thing.  A small whole life policy ($10,000 to $50,000) really functions in a similar way to a savings account.  The main difference is that it is fully funded from day one.  You apply for the policy, get the coverage, make your first premium payment…and presto you are covered.  You kick the bucket the next day and they policy pays out the full face amount.  If you had been saving in your trust then you leave behind $50.

Some agents will make a big deal about how a whole life policy accumulates internal cash and how you can borrow from it.  On one hand, many of those things are true.  On the other hand…I think you should get life insurance because it’s life insurance.  It’s not an investment.  It’s life insurance.

One last thing.  What I recommend are “Combo-Plans.”  These are policies that combine a small permanent policy with term insurance.  Cover your term needs with term.  Your mortgage, college tuition for the kids, etc with are best insured with less expensive term insurance.  Then get $10,000 to $50,000 in permanent insurance that carries you on to the end.  Two data points reinforce this strategy.  The average person spends $30,000 to $60,000 in the last few years of life on medical related expenses that are not covered by Medicare.  That could be care at home, in a nursing home, travel related expenses to see doctors or have treatments in hospitals that aren’t local, hearing aids, vision issues, dental issues, etc.  There is a lot of stuff Medicare covers…but a lot it doesn’t as well.

The second data point is that the average American household within 10 years of retirement for the primary breadwinner has less than $150,000 saved for retirement.  Now, that last ten years people tend to squirrel away a good deal, but we aren’t talking millions, maybe a couple of hundred thousand at most.  That and Social Security is all they have to live on.  It’s not a good situation.  That expensive care in the last few years of life and could leave a surviving spouse or family member in a world of hurt.  $60,000 coming out of a small retirement nest egg is a big financial impact. In summary, get a combo plan that you can afford (it turns out it’s no good if you can’t afford to keep it in place).  It will be with you till you get yours.