One of the biggest myths surrounding the purchase of life insurance is that you’re only insuring income. Nothing could be farther from the truth. Don’t believe me? Skip asking an investment advisor and just ask anyone who’s lost a loved one and had to go back to work the day after the funeral as if nothing happened.
Several years ago a friend of mine lost his young son in a tragic accident. His medical insurance had a very high $4,500 deductible with a family maximum out of pocket cost of $15,000. Those numbers were quickly surpassed prior to his son passing away at the hospital. The Life Flight helicopter alone was over $9,000 but his medical insurance only paid $250 (a common standard). His son’s funeral was bare bones since he had no cash to handle the medical expenses AND the funeral costs … and he had failed to purchase any life insurance at all on his son. His investment advisor had recommended against it saying that life insurance existed ONLY to insure the ability to produce income and that my friend shouldn’t waste money on it for his children.
Life insurance is about more than insuring income … much more
Life insurance isn’t just about families insuring the income of the main breadwinner. It’s also about three other often overlooked costs:
- The final medical expenses
- The funeral costs
- The cost of your mental stability
Final medical expenses
If you lost someone close to you, especially a child, would you be able to foot the entire bill not paid by your medical insurance? Or would you have to declare bankruptcy like my friend did? When he and his wife arrived at the hospital, he had to fill out and sign all sorts of forms. To this day he doesn’t remember much about what he signed but he agreed to be financially responsible for the bills. You won’t get around this one.
The average cost of a bare bones funeral today can range from $7,000 to $11,000. Do you have that amount sitting around, ready to use at a moment’s notice in a liquid savings account? My friend didn’t and had to plead with the funeral home to do the cheapest funeral possible. He is still bitter about it today.
Your mental health
This one is the big unknown. A small life insurance policy may be able to let you get some professional counseling or give you the breathing room financially to take some time off from work to grieve. My friend was forced to go back to work just 3 days later, leaving his wife to grieve alone at home while she answered the phone calls from the bill collectors. She almost couldn’t handle it and considered suicide just to get some relief from her sorrow. The hollow look in both their eyes was haunting.
I can assure you, if I lost one of my children, I would need some time off and some serious counseling. And don’t feed me that line about getting back to work right away being the best thing for me. There is no universal “best thing” for anyone after they’ve lost a loved one … particularly a child.
Life insurance on kids isn’t immoral
I personally find the morality argument extremely offensive. No one wants to “get rich” from a child’s death. That’s just sick. But insuring a child’s life isn’t any more immoral than insuring their health, their car, or your home. You’re insuring against the risk of loss and life insurance on a child helps prevent parents from experiencing even more loss, financial and otherwise.
It isn’t expensive
Fifteen year level term insurance with a $50,000 death benefit on a healthy 10 year old boy only runs about $7.50 per month. On a girl it’s only about $7.20 per month. But still, you’ll find stupid (yes, I said it) financial gurus who claim that life insurance on a child is a poor investment. Sure, it’s a poor investment if you’re looking for a return. I’m not looking for a return on my “investment,” I’m looking to insure against the risk of losing my child.
One size DOES NOT fit all in personal finance and it sure doesn’t fit all when it comes to life insurance … including life insurance on your children.