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.


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