It’s a truism in the life insurance industry that “life insurance is sold not bought”. Meaning that people very rarely go out and seek opportunities to buy a life insurance policy without someone actively trying to sell it to them. Life insurance agents aren’t well liked, because they are trained high pressure sales people.
But life insurance (in my possibly biased view, working for a life insurance company) is a pretty important product to have, at certain stages of your life. Certainly many people in that stage, where their income is needed to pay a mortgage and support dependents, would agree if you asked them that they should have life insurance. So why don’t they?
Convential wisdom is that it is because people don’t like to think about their death or disability. And there is something in that. Life insurance agents are very practiced at telling real death and disaster stories, because it forces their potential targets to think about it. But people buy car and house insurance (more car than house, but they buy it). And car accidents and house fires aren’t exactly fun things to think about.
But I think there is something else. Not many people claim on life insurance. In that peak earning high liability period of their lives, not that many people die. Maybe 1 in every 1,000 per annum. But 15% of people will claim on car insurance in any one year, and 6% of householders. So you will likely know someone who claimed last year on one or the other. You will probably know of someone who died, too. But you are less likely to know them well, so it won’t seem as real, and it won’t seem as much like the normal course of life, to make you take out insurance.
For most people pre-retirement, your income (whether in dollar terms, or in the replacement cost if you disappeared if you are not paid for your labour) is by far your most valuable asset. If you die, it disappears. That’s fine, if no-one but you is depending on it. But if anyone else is, make sure you have life insurance that will replace that asset for as long as its needed. And even if you don’t have dependents, buy disability income insurance, if you value your current standard of living.
My reason for not buying this kind of insurance is different. I hate all the limitations on the insurance company’s liability. With life insurance I guess it’s not too bad – you can’t suicide and stuff like that. But with disability insurance, you have to have a disability of a particular kind – of a verifiable kind – and lots of disabilities are not like that – a bad back, mental illness and so on.