Behavior Gap Newsletter Behavior Gap Sketches

The Purpose of Life (Insurance)

by Carl on June 3, 2009

Life insurance is one of those products that almost everyone thinks they need, but almost no one wants to talk about it, let alone go out on the town for a day of life insurance shopping.

For 95% of the us life insurance has ONE purpose: to replace an economic loss.

That’s it.

It’s not for education saving. It’s not for retirement savings, or to provide a tax-free loan later in life. Again, for 95% of us, life insurance is to replace an economic loss.

So, to buy life insurance you “simply” need to calculate what the economic loss would be if you lost a loved one. If there is no economic loss, there is no need for life insurance.

If there is an economic loss, then life insurance is the perfect tool (indeed, it is the only tool) to protect you and your family against what otherwise could be a financial disaster.

Tagged as: life insurance

  • Great point Carl!
  • That's the great article! I just pass 'n read it, two thumbs up! ;)
  • Len
    Carl, You have hit the nail on the head. I am life licensed and I only offer term insurance. It is the only product that can truely replace someones income at an affordable price. If you try to buy 8-10 times your annual income with cash value insurance, you will get sticker shock. My advice to everyone is to buy Term and invest in a Roth IRA. For my most recent client, I tripled the coverage on him and his wife and saved them $45 per month. Now, if something would happen to the husband, I would be delivering a check for $600,000 instead of some other guy delivering a check for $200,000. The big kicker was that they received $6,000 of their cash value to pay off their credit card. They were paying $200 a month on their credit card. So in essence, I freed up $245 per month for my client. They were very pleased.
  • Nice one Carl.

    I'm sure you've seen your share of cases where a client comes in after being taken to the cleaners by an insurance agent. There are agents that are honest but the industry has a bad rep for a reason.

    Have you found that people are under-insured (even using term)? That has been my experience.
  • First, let me say that I know some insurance agents that I trust and respect because they do the right thing for their clients.

    However, many in the insurance industry have for years only had one tool in their toolbox. Their "hammer" was cash value life insurance, and if all you have is a hammer, everything starts to look like a nail. So life insurance, as you reference, became their solution to everything.

    Today, that's less the case, though there are still many that see life insurance as the solution to everyone's problems. More commonly we find that insurance agents are now also licensed to sell securities which most often take the form of mutual funds or mutual fund "wrap" accounts. So now, consumers need to be wary because if they push back on the "life insurance can fix everything" sales pitch, now many agents can come back with other "solutions" that might not necessarily be insurance-based.

    Bottom line - this is and has always been about selling products. And once people become resistant to one product, salespeople will find another product they can push onto you.

    The better approach is develop a plan or a strategy and shop for the right solutions based upon your needs rather than having something sold to you in the hope that it will all work out in the end.

    Another great post, Carl.
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