Appreciating the Value of Life Insurance

Whenever someone passes away, there is usually an associated financial loss. Such a loss could be the primary income for a family or the replacement value of someone responsible for the care of a child or disabled parent. It could also be a business executive in charge of sales or an employee who managed the operation when senior management was absent. Since you can’t see insurance, it is hard to appreciate life insurance’s value.

This potential financial loss is often referred to as a person’s human life value. The value itself is calculated based on the future loss of an income stream, the future cost of replacement, or the immediate impact on a company while it attempts to replace the key employee.

For most families, the potential loss of income is the primary reason to buy life insurance. Losing the paycheck of a working spouse will leave most families in a tenuous situation, and their everyday lifestyles become vulnerable to a reduced income.

In years past, the primary breadwinner was usually the father. The mother tended to the house while the father headed to the office. Mom welcomed the kids home from school, and Dad brought the paycheck home. Times have changed, and today women participate equally in the workforce. Despite what continues to be an income discrepancy between the sexes, the money Mom earns is essential to the financial well-being of the family.

Consumer Debt

Additionally, it is no secret that consumer debt in the U.S. is on the rise. Government data shows that Americans have a negative savings rate (i.e., we spend more than we earn). As such, any reduction in take-home pay can potentially devastate hundreds of thousands of families. At the same time, this scenario is harsh enough that while both parties are alive and well, the reality of what happens at the death of either breadwinner is frightening.

Because of these reasons, life insurance plays a vital role in any financial plan. It should be the primary asset for families who experience severe lifestyle disruptions should a spouse pass away. Unfortunately, the value of life insurance is frequently misunderstood by those who need it the most.

There are many variations of life insurance products to consider, but that’s a topic for another day. The critical message here relates to the extraordinary value of life insurance itself, not any particular policy type.

Indeed, very few, if any, recipients of a death claim have asked their insurance agent about the type of coverage. The fact is the tax-free death benefit provided a welcomed amount of cash at precisely the time when money was needed the most.