April 27

Coffee With Mike- Let’s Talk Life Insurance

Life Insurance

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Life insurance is is a topic that most of us don't really want to think about because no one likes to think about dying, so a lot of us don't think about it. If our employer happens to give us something, then we get it. But even then, sometimes we don't get that because we have some misunderstanding, or maybe a correct understanding that is just too expensive. Well, expense is really a relative matter. It matters who you are, what you're spending, and what you need. So, I think dismissing something because you consider it to be too expensive, or just accepting something because you feel to be cheap is really the wrong perspective; the wrong basis on which to make a decision on what you should do about life insurance. 

Same thing is true about life insurance as you get older. I have a lot of people tell me that they were only going to need this much life insurance for this period of time, because by the time they reached that age- a lot of the time, that's 45, 50, or 55- whenever they reached that age, they're not going to need life insurance anymore. They'll have everything else protected. Well the whole idea of life insurance is not just to protect something. The whole idea of life insurance is actually to lose a little bit of your money, to take a little bit of your money, and give it to the insurance company so that they will assume the risk of a catastrophe. That's really what it's about. 

Now what is catastrophic? I mean that definition, how you would define a catastrophe, a financial catastrophe, for your family is going to differ from different periods of time in your family. It's different when we're 25 or 35 and we have two kids, three kids, four kids. We've got things that we're trying to pay for, and we got a new job and trying to make a new impression on people around us, and trying to establish a career. Our spouses are maybe trying to do the same thing. 

So, we use life insurance for a different reason then, rather than when our kids are 20 or 25: they're in college, they're trying they're deciding whether they're going to graduate school, and you're deciding whether you're going to/how much of your money you're going to contribute to that, and whether you want to participate and how you want to participate in weddings, and buying houses, and things like that for them. Do you want to do anything there? A lot of people say, "I don't want anything to do with that." A lot of people say, "I want everything to do with that, I want to be involved." So, there are different reasons to have life insurance at different ages. 

"...a correct understanding of insurance is: is there any risk that we're assuming that we really don't want to assume ourselves?"

Then there's times when we would reach 60, 65, 70. I know that maybe this isn't me or you, but you know what, the most life insurance that's bought in our country most years is actually bought by people who are 65 or older. They buy life insurance because their tax attorneys and their CPAs tell them to buy the buy life insurance because it's a good deal for them. Again, what they're doing is they're passing on risk. They're passing on risk to an insurance company to assume what they don't want to risk themselves. 

So there's always this understanding, a correct understanding of insurance is: is there any risk that we're assuming that we really don't want to assume ourselves? We really don't want that risk on ourselves because if it happened to us, it would create a tremendous hardship, if not a catastrophe. Most of us are ignoring that possibility and we're basically saying, "Oh, it's never going to happen to me." Of course it never happens to us, it always happens to someone else. The point I'm making here is that life insurance is a good deal for you at any point in your life, if you have an understanding of the risk that you're facing and whether you want to assume it yourself, or whether you want to pass it on to insurance company. 

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