This is a guest article from my good friend and fellow personal finance blogger, Joe Morgan. Joe is the owner of Simple Debt-Free Finance, where he writes about insurance, investing and avoiding debt (among other topics). He lives on a single income with his wife, 3 kids and a cat named Boo. He is also quite fond of Beethoven. Follow him on Twitter at https://twitter.com/@JMorgan_sdff and be sure to subscribe to his RSS blog feed at http://simpledebtfreefinance.com/feed/.
Most people know they need life insurance, but many still go without it. Some people have never even considered insurance basics and have no idea where to start. Others are avoiding life insurance because of a number of simple misconceptions.
According to a survey by the nonprofit LIFE Foundation, 30% of people surveyed believe they should have life insurance, and 20% of those already insured believe they need more life insurance.
So why do people who say they need life insurance not go out and get the coverage they need?
Reason #1: Consumers drastically overestimate the cost
It turns out that the main reason people fail to buy life insurance is that they believe it’s too expensive. The LIFE Foundation study found that 83% of respondents said their reason for not buying life insurance was that it is “too expensive”.
The magnitude of this problem becomes apparent when respondents were asked to give their estimate on how much it would cost to insure a healthy 30 year old for $250,000 and a term of 20 years.
Not only did most over estimate the cost, but they overestimated the cost by nearly three times the actual amount. The youngest set of respondents overestimated by as much as seven times! This is particularly damaging since the younger group would receive the best price available, but the longer they delay the more they will pay by the time they get around to buying it, if they ever do.
The lesson here is clear: If you’ve put off buying life insurance because it’s “too expensive”, you should double check your assumptions. It may not cost as much as you think.
Reason #2: Life insurance is not a priority
Also according to the study, 85% of respondents said one reason they have not purchased life insurance was that they had “other financial priorities.”
When asked to clarify those other priorities, respondents stated that while they generally agree that life insurance is a necessity for their family, paying the mortgage or rent is more important.
Half of the respondents stated that they were more concerned with having enough money for retirement, and 26% said they were more concerned with losing money on their investments than not having enough life insurance.
This seems like a lack of perspective as well. Consider that, without proper coverage, the family that’s left behind would almost certainly not have enough to retire, and may not even be able to pay the rent or mortgage. Read Why I Bought Life Insurance On My Kids.
What you should do
I’m not here to sell you an insurance policy. I’m just a guy who’s passionate about personal finance, and self education. I love to see people live up to their potential, and believe that a little knowledge can often go a long way toward that goal.
Here are some things you should do now that you’ve read this article:
1 Read the insurance basics, and get up to speed on the subject (it’s not that complicated).
2 Consider your current situation and determine whether you need a life insurance police, or if you need more coverage.
3 Think about what would happen to your family if you die uninsured.
The cost of life insurance premiums has declined significantly over the past 10 years, and it really is a small price to pay for the piece of mind and it can be a life saver to those left behind.