Life is full of risks and it’s up to each of us to decide which risks we will insure and which ones we will assume. The general rule is to insure those risks that have a small chance of happening but if they do happen, will have catastrophic consequences.
If a risk has a negligible consequence, what’s the point in insuring it? For example, if a $30 CD player breaks, the lack of insurance on it won’t hurt. But if totaling your car would create a financial hardship, it should be insured.
Virtually anything can be insured, if not through the normal markets, then through the specialty markets such as Lloyds. Whereas traditional companies won’t write disability policies on professional athletes, teams routinely insure their larger contracts through the specialty markets. (This is an exception to the general rule of insuring only those risks that have a small chance of happening.)
For most of us, there are at least two risks that should probably be insured; our health and our ability to work. The first is insured with health insurance, the second with disability insurance.
Many millennials forego health insurance for several reasons. One, their employer doesn’t offer it, two, it’s expensive, and three, they’re young and in reasonably good health. While statistically younger people use health insurance and health services much less frequently than older people, an accident or illness could have severe financial ramifications and thus should be insured. (This meets the general rule).
Disability insurance is skipped for the same reasons and should be procured for the same reason. Most people would be in a financially precarious condition if just one or two paychecks were missed, let alone a year or more.
Given the demands on resources, it’s understandable why young college graduates aren’t rushing out to buy life insurance. Now I’m not saying that life insurance is more important than health and disability insurance to a young single person with no dependents (because it isn’t), but it is different.
The major difference between life insurance and every other kind of insurance available is that it insures a known event, whereas every other type of insurance insures a potential event. That is huge and is also the primary characteristic that allows for the development of cash value life insurance.
Another significant difference is that life insurance can be “paid-up.” Paid-up is a technical term that means that not only are no more premiums required to keep the policy in-force until death, but no more premiums are allowed.
Through the use of dividends, a policy might not require out-of-pocket premium payments to keep it in-force but unlike paid-up, this method is not contractual. These days, whole life policies issued by major mutual companies usually only require about 15 annual premiums before dividends are sufficient to carry it. That is why young people who otherwise don’t need life insurance should consider getting it, provided they have addressed their disability and health insurance needs.
So yes, life is a risky proposition and at times, some of those risks take precedence over life insurance. But the sooner life insurance is acquired, the sooner the policy equity will cover future premiums.
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