On Saturday, I will become a father-in-law for the first time. A wedding is such a romantic event, an atmosphere filled with love, hopes and dreams. A less romantic aspect is the increased responsibility that accompanies such a union. That responsibility should lead to a discussion of life insurance, but, because of the hustle and bustle surrounding the event, oftentimes gets lost in the shuffle.
Marriage is one of those life events that trigger the need to look at life insurance, maybe for the very first time. The couple is creating a new independent economic unit and accordingly, must plan for self-sufficiency. A well designed life insurance program should be the cornerstone of such planning.
I recently came across the above quote attributed to Elvis Presley. His image was never one of a deep thinker, but then again, his image was created to sell records, not reflect who he really was. You could replace the word “truth” in the quote with “the need to get your affairs in order” and not lose any of its impact.
A basic tenet of insurance is to insure those items that have a small chance of loss, but whose loss would create a significant hardship were it to occur. Someone who produces an income that one or more other people depend on fits that definition. Replacement insurance on a $200 camera that many stores try to sell usually doesn’t. If, in the unlikely event the product doesn’t last the warranty period, you can just buy a new one.
Some (many?) people think of life insurance as gambling. But since we all will die, at an unknown time, isn’t having no life insurance gambling? The risk exists, it just a question of who is holding the bag; the insurance company or your dependents.
Suze Orman was recently quoted as saying that cash value life insurance is the worst investment one can make. As readers of this newsletter are aware, I don’t view life insurance as an investment, but even if you do, most people lose money on their worst investment. If you earn 4-6% on an investment and that is your worst investment, well you should pat yourself on the back. Or call Warren Buffet and apply for a job.
Risk. It's more than just a game of world domination being played by two guys who can barely run their own lives. It’s the chance that our longevity or health prevent us from accomplishing our financial plans. And it can be insured for pennies on the dollar.