When Do You Know That Your Life Insurance Isn’t Worth It?

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A Brief History

To this date in history, life insurance is perhaps one of the most “problematic” or morbid financial services available to the regular consumer. The idea of insuring your life sounds a bit odd, but there are quasi-magical stories that appear from time to time: of the father who took out a policy without anyone knowing, then suddenly passes away leaving more than a quarter of a million dollars in his wake. The guiding principle behind life insurance policy is basically this: a person pays a set monthly fee as a way of setting aside money for their beneficiary in case of death – if indeed he or she passes away, then ostensibly they would be leaving the amount of money they would have earned if they did not die. It is essentially a way of providing loved ones with a safety net in case tragedy strikes; however, there are times when a life insurance policy will prove to be totally wasteful. Here are a few tips to help you make an informed decision.

Digging Deeper

Figure Out How Much You Can Get

Here is another stark reality: if you do not die and end up living a long life, then you will not receive a cash payout for your policy or settlement. The ability to cash out on a life insurance plan can be a crucial issue for many seniors who have diligently set aside money every month, only to realize that they might need it back to get through a medical emergency, or to save their home for example. Living long is great, but then how do you know if you are entitled to a settlement in the long run?

There are different kinds of policies for you to look at when you are shopping for life insurance. There are twenty-year policies, and shorter-term ones are also available; however, if you do not die within that time frame, then no money is to be received – at all. This is a built-in quirk of all life insurance policies, not a result of the corporation wanting to take you for a ride. Ultimately, when you purchase a life insurance policy, you are setting aside money for peace of mind in case something happens to you, and it is not an investment per se. Before purchasing a policy, you should really think of the risks involved, but particularly when it comes to the timespan and how much you are willing to set aside. The cash payout is not necessarily a sure thing, so it is worth mulling over.

Another Option for the Less Certain

Given insurance customers’ unease with what is outlined above, in terms of not ever seeing potential profit from the endeavor, the industry devised two different branches: one is whole life insurance and the other is universal life insurance. Two variants on term life insurance which offer a cash value beyond the standard life insurance death benefit. It might entail having you pay a bit more every month than other plans, but it also means that you can redeem the difference at your convenience. 

Gauging the Economic Value of Different Policies

Going out to purchase policies more complex than the usual term life insurance option might make economic sense for you, depending upon the situation. However, purchasing an insurance policy should not be mixed up with investing – oftentimes, customers confuse the two when in fact their goals are not just oppositional, but they have a completely different set of priorities and mode of operating. If you want to invest and create a nest egg, then you should look into something that is more straightforward and is a “sure thing.” There are so many plans available for you to research, and you might very well come to the conclusion that a life insurance plan is not right for you or your family.

The Wrap-Up

Life insurance policies definitely have several benefits and can be a godsend to cash strapped families in the wake of an emergency. So, none of the above aimed at denigrating life insurance plans, but rather to explore their usefulness for different people. If you are fortunate enough to have a good income, then discussing life insurance policies with a financial consultant is not necessarily a bad move. Just bear in mind that the purpose of insurance is spending money so that your loved ones would avoid financial turmoil in the wake of an emergency.

Finally, be careful when shopping for an insurance policy that pretends to be an investment, since these are – once again – two opposing ideas. Make sure to research and understand the fine print as much as possible in order to minimize risk.

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Historical Evidence

For more information, please see…

Zelizer, Viviana A. Rotman.  Morals and Markets: The Development of Life Insurance in the United States (Legacy Editions).  Columbia University Press, 2017.

The featured image in this article, a photograph by geralt, is licensed under the Pixabay License.

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About Author

Abdul Alhazred

“But I don’t want to go among mad people," Alice remarked. "Oh, you can’t help that," said the Cat: "we’re all mad here. I’m mad. You’re mad." "How do you know I’m mad?" said Alice. "You must be," said the Cat, "or you wouldn’t have come here.” ― Lewis Carroll, Alice in Wonderland