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- One of my best friends from high school died at age 27, six months after giving birth to her third child.
- Fortunately, she had term life insurance, which meant her family could take time to grieve.
- LIMRA found that 102 million Americans had insufficient or no life insurance in 2021.
We all know that we can die at any time. But as a healthy 20-year-old, I had never thought about leaving my loved ones behind with more than a fleeting gesture of confession.
That changed in January 2010 when I received a Facebook message that Matt, one of my best friends from high school, had died in a car accident. He left behind his wife Tricia (his high school sweetheart and also a good friend of mine) and three children, the youngest of whom was only six months old.
I gathered with my high school friends for his funeral. It hadn’t even been a decade since we were helping Matt ask Tricia to prom, eating pizzas on game night, and baking in school musicals. Suddenly my sense of mortality became very real.
In the months that followed, I spoke with Tricia about Matt’s death and what to do when a loved one dies. At 27, I had absolutely no idea of the logistics involved, but since both she and I were stay-at-home moms at the time, I was paying full attention now.
A big question in my mind was: “How can I prepare for this if it ever happens to me?” Because I suddenly believed it could.
Help provided by life insurance
I was relieved to learn that Matt had term life insurance, allowing Tricia the financial means to take care of final arrangements and her young children without rushing from being a grieving widow to a working mother.
Matt and Tricia’s story is exactly the risk that this form of defense is trying to mitigate, and it can happen to anyone. Unlike many other forms of life insurance, term insurance is simple. the policy beneficiary receives a lump sum payment that is generally tax-free if the insured dies. It is not attached to any savings or investment funds; it simply helps your loved ones take care of your funeral and replaces a portion of your income if you die.
Financial experts strongly recommend term life insurance for young families with dependents, especially when one spouse is the primary breadwinner. This helps surviving family members cover funeral expenses (which average $7,000 to $9,000) and ease their financial situation.
It should be noted that stay-at-home spouses also benefit from life insurance. The unpaid work they do (such as cooking, cleaning, childcare, scheduling meetings, paying bills, etc.) needs to be done by someone, and grieving partners may not be able to shoulder the full burden. Having a life insurance policy on a non-working partner allows the other to outsource some of those domestic responsibilities.
Too many Americans are underinsured
In a study by the Life Insurance Marketing and Research Association, just 52% of Americans had life insurance in 2021, down from 63% in 2011. LIMRA reports that 102 million Americans need life insurance or more coverage.
42% of survey respondents said they would “experience financial hardship within six months” if a wage earner in their household died, so it’s safe to say that a significant portion of the population needs the protection provided by life insurance.
While most families will benefit from life insurance, it is not essential in all cases. To determine if term life insurance makes sense for you, ask yourself these two questions:
- Does anyone else depend on my income and/or job?
- Will my family face financial hardship if I die?
If the answer to any of these questions is yes, it is worth considering getting a term life insurance policy.
Some life insurance is better than none
A general rule of thumb is to start a policy paying ten times your salary, although this is just back-of-the-napkin math. You may need a lot more or a lot less depending on your mortgage payment, savings level, debt balances, whether your family members have special medical needs, and many other factors. Tricia later shared with me that while the amount of life insurance she and Matt had chosen was enough to support her family, things would have been easier if they had doubled it.
Regardless of whether the amount of life insurance you choose is right, it’s safe to say that some is much better than none.
Matt’s death forever shaped my view of life insurance. Since then, it has never been a luxury on my budget, but rather an absolute necessity. Tricia’s story could easily have been mine.
I’m thankful that two of my friends were wiser than I was at 27 and got term life insurance to protect their young family. Without their planning and foresight, one tragedy could easily have turned into two.