The Costs of NOT Having Life Insurance

July 10, 2013 | Posted By: Brian Johnson | Categorized in: Finance

An unexpected death raises many important questions that are whispered between survivors. Immediately following, “what happened?” is the inquiry about the existence of a life insurance policy. Remarkably, financial advisors continue to find people, of all ages, who have never purchased life insurance coverage. But, it is always suggested that anyone with dependents must consider the costs of not having life insurance.

Let’s go through a few major points that divert our attention to the benefits that having an appropriate life insurance policy can have.

Immediate Expenses

In our spending culture, few families have saved thousands of dollars that rest in a savings account for use when the unthinkable happens. Retirement accounts, stocks and bonds are investment instruments that are not immediately available. In the event of a loved one passing away, the surviving family members will have immediate expenses that must be covered within the first 30 days.

  • Funeral expenses – Costs associated with transporting a body, burial and funeral services can exceed $10,000. No one wants to settle for a simple memorial service when the person means so much to them. And so the family should not be burdened with years of debt because these costs were unaffordable.

  • Monthly obligations – Bills will continue to arrive from every creditor. Credit card fees will mount quickly if the survivors are left with no money to pay the bills. And the phone calls to creditors will only delay the costs for a short time if the survivor remembers to address the situation.

  • Family needs – Children and families have daily needs that require a certain amount of cash on a daily basis usually provided by the earning member. If the diseased happens to the sole earner or the major contributor to family income, the survivor must have sufficient funds to pay school bills, daycare providers and pay for the groceries. A credit card delays the inevitable, which could have been paid with the proceeds from a life insurance policy.

Transition Costs

Legal expenses arise as the survivor discovers the details that must be addressed to live without the deceased. Large assets cannot remain in the ownership of the person who is no longer living. Attorneys expect full payment of fees to address these significant legal transactions.

  • Home ownership – The lender who holds the mortgage will require transfer of the mortgage to the survivor. Life insurance proceeds would have been used to repay the mortgage in full, which would provide housing for the family. Few families are able to remain in the family home following the death of an uninsured wage earner.

  • Business ownership – One in five businesses will survive the loss of an owner, or principal. Transition expenses for a business can exceed $1 million. Life insurance coverage on the business owner would be used to acquire expertise and sustain the employees’ salaries until the business could be sold.

  • Notifying interested parties – Legal transactions require the survivor to acquire multiple copies of the death certificate. Expenses associated with ownership details can accumulate quickly because of the copies, postage and legal documents that are required. A young surviving spouse will incur financial hardship that could have been avoided with life insurance proceeds.

Long-term Impact

The short-sighted decision to have a family, buy a house and create a business without life insurance will be life-changing for those who are left behind after a tragedy. In our fast-paced world, unfortunate events happen every day. An appropriate life insurance policy in such a scenario would preserve the family’s dreams and sustain the lifestyle for survivors.

  • Loss of house – Expenses associated with homeownership far exceed the income of the remaining wage earner, or homemaker. The family may be required to move to a smaller living space to afford to live in the same location. Life insurance proceeds should have been sufficient to repay the entire mortgage and pay for home maintenance expenses, taxes and home insurance for at least another five years.

  • Business failure – Employees rely on business owners to have contingency plans that will sustain the business if an owner, or principal, dies prematurely. Jobs are lost, and many families are affected if the owner does not have life insurance. Four out of five businesses will cease to exist if the owner dies.

  • Poverty for family – A life of poverty can be the most devastating result for a family when the primary wage earner passes away unexpectedly.

Before we conclude the discussion, let’s understand that decision to buy a life insurance policy is unpleasant since people don’t enjoy speaking about mortality. But it’s time we start taking this seriously and change with times.

Annual financial reviews allow the family to make wise decisions that include life insurance coverage for both adults. Current financial obligations should be considered when determining how much life insurance is required for the next year. Any future adjustments can be made without undue effort from the financial manager. Similarly, new life insurance policies can be added, and obsolete policies cancelled to prevent hardship for the family before the next review session.

Brian Johnson is a Blogger with Select Quote, a leading provider of term life insurance. The website contains a range of resources for consumers to learn the ins and outs of insurance, including types of insurance, rates, and estimates for how much insurance consumers typically need based on their lifestyle.

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    July 11, 2013 | Posted By: Sonofspam
    Please excuse me if I speak out of turn here or sound like I don't understand, but I would appreciate some clarification on the part about credit card bills (in particular) that have been used and may continue to climb after the death of the loved one. My understanding is, unless another surviving person of the deceased is also a joint account holder, or signed on whatever the revolving or unsecured credit account may be as a responsible party, then neither they (the survivor) or anyone else in the family is responsible for these debts of the deceased. IOW, if the deceased died with credit cards and maybe other revolving accounts that are unsecured debts, then a surviving spouse, adult children, or other family members are not responsible for these debts. Is this right?

    Further, if the deceased does not have any sizable estate, other than perhaps life insurance to cover the costs of their burial, or other small (under 100K) amounts of life insurance, then the unsecured creditors do not have anyone, such as the deceased's estate, or a survivor, to sue for satisfaction of these unsecured debts. Again, am I right in this?

    I am not seeking to portray a position of "screw over the unsecured creditors!" like a credit card company, but on the other hand, I do not see how the surviving family members, if they are not co-signers or other wise signed on the accounts of the deceased as directly responsible, then how would the survivors even be responsible?

    Couldn't the survivors, those, if any, that are not co-signers or have any part of the deceased's debts, could they not just wish the creditors a good-day, hang up the phone, and be done with it from there? How would the survivors be legally responsible foe any such unsecured debts?

    Again, I am not speaking of burial expenses or the final expenses such as mortuary, etc. Only unsecured debts, such as credit card debts, that come around sniffing the corpse for a way to collect after the death of the family member.
    July 12, 2013 | Posted By: MarsdenFubar
    You are correct with the credit card debt on death. If your name isn't on the account you can tell them to pound sand. They WILL try to get you to take over your spouses debt, but you have no obligation to do so.
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