Maybe I just don’t understand what they’re doing. BUt it seems to me if I take out a 10 year policy that costs $100 per month, I’m betting that I’m going to die within that period of time and the company is betting that I won’t or that they won’t have to pay out. If I get to the end of that 10 year term, then I’m just out $12,000. What am I missing?
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For most people, life insurance is more important in case you or your partner dies young. If you die when your old, insurance will likely be cool as a perk for your kids/family, but not “life saving”. Consider these two:
Guy is 30, has a wife, 3 kids, 2 cars he has payments on owes a few hundred K on his house. Kids will be in college in a few years. His net worth is likely negative. His only source of income is his job. If he dies…it’s a major problem for the family. They can’t pay for the house, cars, school…maybe even just food on the table. So he gets a say 10 or 20 year term plan to take care of that. Well, what if he dies when he is 65?
At this point his house is paid for, kids are through school. HIs 401 and Roth have some real$$ in them, and he gets money from that monthly. He may be retired. He may be taking social security. His assets are higher, and his spend is lower. If he dies, the family has money coming in and has a nest egg that he didn’t have when he was 30. His wife can easily stay in the house and put food on the table. So for the family it is a very different picture if Guy dies when he’s 30, compared to 50, 60 or 70. Insurance can fill that gap and be a win for him and the insurance company.
So many people look at insurance like that: I need $$ for my wife or family in case I die at a time when debts and cost of living are high, and people are dependant on the income.
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