I have mentioned before that if we all knew the date and time and perhaps the reason for our death, well ahead of time, it might change the need for life insurance dramatically. With time to plan it is possible to put money somewhere other than life insurance and provide for those left behind.
Not a week goes by that someone doesn’t decide, usually on the advice of a financial planner, that rather than buying life insurance, they can put that same money away each month or each year in an investment. The idea, of course, is that when they get old, rather than having “thrown that money away” on life insurance, they will have this great nest egg to use.
There are several problems with this approach, the most obvious being that we really don’t know when we’re going to die. We can guess at our mortality by using averages. There were nearly 43,000 deaths in car wrecks in 2006. An additional 4500+ deaths happened on motorcycles. Pedestrian deaths topped 5000. 27,000 died from prostate cancer. 41,000 women died from breast cancer. This is just a small sample of the unexpected deaths in 2006.
If these people used the “put it away” rather than buy life insurance method, I suspect the majority may have fallen short of their plan’s goal.
Another downfall to the idea of putting an amount equal to the life insurance premium away in investments is, quite simply, that most don’t do it. While a person might be somewhat invested in keeping life insurance in force, diverting money from a potential investment to another use is a fairly common occurrence.
Bottom line. Life insurance is not an investment, and investments are a poor substitute for life insurance. Death is rarely an event that can be nailed down by long term planning and life insurance is the most economical way to deal with the financial impact of premature death.