Life Insurance? Why?Why?Why?Why?
Life insurance enables us to relax about the money problems that might fall on our immediate family if something drastic were to happen to us. Simply put it means peace of mind and freedom from worry. Life insurance can however be a difficult concept to understand.
The Greek philosopher Socrates had a method of enquiry that is invaluable in understanding difficult concepts. The Socratic method is to ask and answer the question 'why….?' Sequentially until any subject, life insurance included becomes clear. So why do so many people put so much money into life insurance all over the world?
There are two reasons. The first reason is that it is like betting on a sure thing at the races. People know they are going to die at some time but they don’t know the exact time. So your insurance company pays out when you pass the post no matter if it’s tomorrow or in twenty years. Thus there is the peace of mind in knowing that your beneficiaries will not struggle for money at a time when they will be struggling with other emotions.
The second reason is that life insurance is an asset in its own right. It isn’t dead money at the time of untimely death and it can be cashed in times of greatest need. There are two broad sorts of life insurance—‘term’ and whole life. Term Insurance is the simplest form of life insurance. Money goes to the beneficiary only if death comes during the term of the policy. Which is normally between 1 and 30 years. Most term policies are this straightforward but there are two variations on them: ‘level term’ where the death benefit stays the same throughout the policy life and ‘decreasing term’ where the death benefit drops, each year over the course of the policy’s life.
So why is peace of mind and an asset so important to so many? There are two reasons because financial security meets two basic human needs. Firstly the need to feel secure about our family and in the modern world this has to mean secure in money terms. The second reason is to not feel anxious about the unknown at least to the extent that we provide for our loved ones.
So why do anxiety and security make life insurance your best buy. Basically the answer to this is that anxiety reduction and security enhancement are flip sides of the life insurance coin. Knowing that your beneficiaries have the money to continue life without significant belt-tightening in your absence yields emotional relief from worry for the policyholder. This is at the same time as reducing the fears that all people have. These fears are more for spouses and children than for themselves. But make no mistake the emotional utility of insurance as a product goes first and foremost to the policyholder. Heads you win, tails you win. Buy one get the other free.
So why spend money on life insurance rather than say gym membership?
There are many other things that you can spend your money on than life insurance premiums. Take a gym membership for instance. Surely this would prolong life and reduce the need for life insurance. Well no, it doesn’t reduce the need for insurance but it might reduce your premiums since people who do hazardous things such a smoking are more likely to die sooner and therefore have to pay more for insurance cover. Keeping fit can also help you feel better as can life insurance cover, so better to have both rather than one or the other.
All of us are aware of our own mortality and life insurance is the best use of our money to militate against the worst effects of this inevitability.
|
