The Importance of Life Insurance

Written by: Nick Chapekis CIC, CRM

Every September, the insurance industry sponsors Life Insurance Awareness Month, and this year is no different.  These campaigns are designed to educate consumers about the importance of life insurance and the role it plays in protecting families’ financial security. 

The industry’s motivation is, of course, to drive sales, but there’s more to it than that.  Lack of proper protection can be financially devastating to families who have already been dealt the blow of losing a family member, and these situations happen every day.  Just do a Go Fund Me search or peruse the obituary page requesting donations to help families of the deceased.  The financial end results are often very sad. However, despite the unchanging need for life insurance, it is losing its appeal in the U.S.

In 1965, Americans purchased 27 million policies, individually or through employers. In 2016, a population that was more than 50 percent larger still bought only 27 million policies. The share of Americans with life insurance has fallen to less than 60 percent, from 77 percent in 1989. Why this is happening remains a puzzle.

Why Do People Get Life Insurance?

People buy life insurance for various reasons: to pass wealth along to future generations, to provide liquidity for mortgage payments, or to cover funeral expenses, to name a few. These motivations vary for individuals as their life situations evolve.  But if income replacement needs are not met, people (often children) suffer.

Can Life Insurance Be Used While Still Alive?

At The Dearborn Agency, we receive inquiries from Metro Detroit residents asking this same question. This is an understandable thought because it’s often difficult to pay for something that you’ll never personally use.  However, there are certain life insurance products which CAN be utilized to cover expenses before someone dies.  This is usually accomplished by adding “riders” to new life policies, such as:

  • Accelerated Benefit riders (which pay out prior to death in the event of a terminal diagnosis)
  • Chronic Illness riders (which cover long term care expenses once certain activities of daily living can no longer be accomplished individually)
  • Critical Illness riders (which help pay for unreimbursed medical expenses)

It is also important to note that some life insurance policies also accrue cash value, which can subsequently be withdrawn as loans against the death benefit.

What Are The Next Steps?

If you currently do not have life insurance, or do not have enough life insurance, contact an agent as soon as possible.  Whatever your current financial situation, something is always better than nothing, and agents can suggest numerous ways to fit life insurance into a budget.