Hoping is not a plan — get some life insurance

To many, buying insurance for your car, home or life seems like a big waste of money. What if you never get into an auto accident? Although most states require auto liability insurance, people nonetheless grouse about all that money doled out over the years. Or what if you never make a claim against your home insurance policy? That’s money gone too, they grumble.

And chances are you’re going to live a long life.

But like it or not, insurance is often necessary because most of us can’t self-insure against financially catastrophic events.

Still, lots of people have to be persuaded — when the law or a contract such as a mortgage doesn’t force the issue — to buy insurance. Such is the case of a reader who wrote to me during one of my online discussions. She’s at a loss as to how to prove to her husband that they need life insurance.

Their background: They are in their early 30s with two young children. He is the main income earner. She works part time from home, and cares for their children. The mortgage is their only debt. “Emergency savings and retirement are in decent shape, although I would like to be saving even more,” the wife wrote. “We definitely aren’t living paycheck to paycheck, but don’t have much monthly wiggle room for ‘extras.’”

The wife’s argument for life insurance: “I feel strongly that we both need it,” she wrote. “I think we just need enough money to be able to afford to pay the mortgage and child care for a couple of years.” Life insurance would give the surviving spouse a chance to regain footing and make a more permanent game plan, she said.

The husband’s argument against life insurance: “He says he doesn’t want to pay a premium for something we are highly unlikely to ever need. He thinks that if one of us passed away, the other would just need to ‘deal with it’ as best we could.” And by “deal with it,” the husband’s plan is that the surviving spouse would sell the house and move out of state to be with family who would help with child care, she says.

I asked Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, to weigh in on what he would tell the husband.

“My first reaction is that ‘deal with it’ isn’t a plan,” Weisbart said. “Insurance is for rare but financially crushing events; because they’re rare, the premium is affordable and if the event insured-against does happen, financial disaster is avoided, and the road to recovery is faster and smoother,” Weisbart would tell the husband.

OK, what about selling the house?

“We don’t know anything about the current house, but under the pressure of a post-death sale, it would likely fetch less than under more favorable selling conditions, particularly if there are some defects that couldn’t be fixed quickly and cheaply,” he said.

But the wife could go back to work, right?

“If [the husband] dies, she would immediately have new expenses. She would need to transition from a part-time to full-time earner plus begin paying for child care.”

Weisbart had other questions for the husband:

Does he have health insurance through his employer? “If so, the cost of successor coverage could be a substantially greater expense.”

Are there tasks that he performs for the couple that she would have to hire people to do after his death?

Are living costs near the family higher or lower than where they live now?

Would the wife need to pay for school or a training program to boost her employment skills? How much would this cost?

Would she ultimately be able to replace the income he earns?

As for child care, has the family who would provide it agreed to do so, and are they — financially, physically, etc. — in a position to do that? (People promise a lot of things they don’t or can’t follow through on. Just saying.)

If his wife dies, would he move with the kids to be nearer to family, and would he have to switch jobs? If so, would he have to take a salary cut in order to find employment in the new location?

“I think that it would be helpful for each of them to have life insurance at least to help manage what I call transition expenses,” Weisbart said. “At their ages, it would be very cheap, particularly if they bought 20-year term policies.”

I hope the couple lives a long and prosperous life. But hoping is not a plan.