Is Life Insurance A Necessity Or A Luxury?

A few weeks ago a couple of the posts on my blog upset an insurance agent.  I was sent the following nasty-gram.  I have cleaned it up a little so I can still give myself a G rating.

“Everybody needs life insurance…”  If it came a from anyone other than a life insurance sales person, I would be more inclined to pay attention to what he/she had to say.

Since it came from someone who makes their living through the sale of life insurance, I will take it with a grain of salt.

I will modify his comment by saying, “Everybody needs life insurance, except when they don’t.”  What the heck does that mean?  I’ll try to explain in the rest of this post.


Life insurance creates a cash estate when the insured dies.  The concept of life insurance only goes back as far as World War I.  Before then, when someone died, their heirs only got the assets their loved ones accumulated.

Today, life insurance allows a family to move from welfare to high society over night.  All that is required is for someone to pay their life insurance premiums during their life.

Originally, the purpose of life insurance was to pay for final expenses and leave a little to support the widow and children of the deceased during their grieving period.  It was not intended to replace an insured’s income for many years, pay for college or pay off a mortgage.

Over the years, life insurance has progressed.  It has been perverted to pay all of the following when an insured dies.

  1. Replace a wage earner’s income
  2. Pay for a nanny/housekeeper
  3. Pay off bills (mortgage, credit cards, car notes, etc.)
  4. Pay for kids college
  5. Pay for daughter’s wedding
  6. Buy out business partners
  7. Pay for funeral costs
  8. Pay off final medical expenses

Life insurance today does all these things and more.  It is a magical financial tool.


As kids grow up and start having families of their own, the need to hire a nanny, fund college or pay for a wedding disappears.

As you retire, your need to replace your income or buy out business partners diminishes.

Ideally, your house is paid for and you have been able to retire most of your debt.  The only reason left for life insurance is funeral and final medical expenses.

If you have been able to save enough cash for your survivors to pay those bills, life insurance is not a necessity.


As you retire, life insurance may no longer be a necessity but it may still be a nice luxury.  If your goal is to leave an inheritance to your loved ones or a cash donation to a favorite charity, you may wish to consider  life insurance.

As long as you pay your premiums in a timely manner, life insurance will provide  liquidity when you heirs need it.  It allows you to pass an inheritance of real estate to multiple heirs without forcing them to sell the property at less than full market value.

Life insurance can also allow you to give your favorite charity or alma mater a cash donation.  I remember when I was in college the school got a $ 5,000,000 bequest from an alumnus.  That money was used to do a complete remodel of a girl’s dormitory.

A $ 5,000,000 gift is hardly anything to sneeze at but it was not a $ 5,000,000 gift.  It was the result of a life insurance policy.  By waiting until his death, the benefactor was able to parlay his $ 50,000 gift into $ 5,000,000.

Rather than a simple renovation of a couple of faculty offices, the school was able to gut and remodel a 4 story dormitory for students.

Yes, life insurance is nice to have.  It can work magic.  I just don’t know if I can agree with the claim that “Everybody needs life insurance.”  To me, Long Term Care insurance is just as big a need, if not more of a need than Life Insurance.

Unlike life insurance, it does not require an insured to die before benefits are paid.  A Long Term Care insurance policy can allow an insured to pay for the help that will allow him/her to remain living in the surroundings to which he/she has become accustomed.

I guess it all boils down to economy.  An insurance agent who gets a bigger commission by selling a life insurance policy will naturally say that life insurance is a need.  A senior who needs help transferring from a bed to a wheel chair will probably see more value in the Long Term Care insurance.

Tim Barnes, CLU is dually licensed both as an insurance agent and Insurance Counselor in Texas.  He acts only as an insurance agent in other states.  You can read his bio and see his credentials on the ABOUT THE INSURANCE BARN page.



One thought on “Is Life Insurance A Necessity Or A Luxury?

  1. Tim, with all due respect, I disagree on several points. First of all . . life insurance IS a necessity – NOT a luxury. I can’t tell you when, nor can I tell you how . . . but I can guarantee you one thing – YOU WILL DIE. I guess you would have to be on the receiving end of an unexpected death of a loved one who has no insurance to truly understand how their death affects them financially. Are you going to pay for those final expenses? Are you going to put little Susie and Johnny through college? Are you going to pay the $50,000+ medical bills the deceased accumulated prior to death? Yes, the concept behind life insurance has changed drastically over the course of many years . . . a lot of these things were never considered and because little Susie & Johnny’s primary income earner passed away early, they went from financially comfortable to financially poor.

    As far as your comment regarding once the mortgage is paid or you retire therefore you no longer need the amount of insurance to cover those things, yet you’re still paying for them – that’s part true and part false. Yes, once you retire or the mortgage is paid off, there is no longer a need for a large amount of insurance. But while you do need, a TERM policy is the best bang for your buck. To cover them for a period of time (10, 15,20, or 30 years – but it’s usually 20, depending on their age and/or age of children). And just to add a little incentive, a “Return of Premium” rider (usually between 80-90% of what premiums you’ve paid in) can be attached. That is a win-win situation. So again, you’re writing a blog that, in my opinion, does a disservice to those thinking along the lines of life insurance because you’re not honing in on some important factors.

    As for long term care – totally agree this is needed. But again, MOST life policies today, depending on the company, will attach a rider (should the insured so desire) for long term care.

    I have heard Dave R (financial advisor) on the radio make a remark about a parent insuring their child(ren) for $50,000-$100,000 is just “sick”. I guess Dave has healthy children, and praise the Lord for that. Not all are as fortunate. Writing a $50,000 whole life with a Guaranteed Insurability Rider for UP TO $100,000, paid up in 20 years on an infant or child, who at the time, has no medical issues and then during their pre teen years, develops diabetes, Crohn’s, or heaven forbid Cancer . . . is smart. Because prior to the policy being paid up, the parent can choose to add the additional insurance and because they’ve paid for this Guaranteed Insurability Rider, the insurance company MUST honor it and after a 3-4 page application, they are insured for the additional. I don’t know the statistics of how many children develop these diseases as they get older . . . but I’m one of them, and my stepson is another. NOW . . . we are graded.

    So please . . . let’s not lump insurance agents as money grubbing people who are only out to make a buck – earn a living, most definitely . . . off of the backs of hard working individuals who can’t afford it – NO!

    And yes, I’m an insurance agent . . . and the very first thing I do, is a Needs Analysis on “Mom and Dad”, because I can’t walk into a home and assume I know what they need – because I don’t. Every household is different. The Needs Analysis does that for me. Some people don’t care to pay for their children’s education or replace the income for “x” number of years – it’s not my job to argue with them. My second question after the Needs Analysis is to find out what they feel financially comfortable spending each month, my third question is to find out how their health is and/or what medication they’re on and my last job is to take all *their* insurance needs, budget and health into consideratoin and find the product that will cover all of that, within their budget.

    Anne Causey

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