QUESTION: Greg on Twitter asks why Dave personally has life insurance. The reason reaches a little deeper than money.
ANSWER: You’re right. I don’t have any risk, and Sharon would be just fine if I die with no life insurance. She’d be just fine. I’m self-insured. I’m not only out of debt, I also have wealth, so she could live off of our investments easily. She’s just fine.
I’m 52 years old. I’m in great shape—not perfect shape but good enough that I qualify for premium rates or whatever you call them. I don’t smoke. I don’t jump out of perfectly good airplanes—that kind of stuff. I qualify for the best rates, in other words.
I could buy $1 million worth of 20-year term life insurance for nothing. It doesn’t cost much. The only reason I buy life insurance at this time is SWI—Sharon Wants It. She would rather have a $5 million policy on me than she would another shiny rock to hang around her neck. It’s a luxury item, if that makes any sense. It may not make sense to you, but it doesn’t matter. It’s not for you. It’s for her.
It’s kind of like with all the stuff Sharon has been through being my wife, if Sharon wants it, Sharon gets it. She’s not real hard to please, by the way. She just likes to have some life insurance that’s got her name on it in addition to the other stuff, and that makes her feel good. That’s fine. I can afford it. It is a luxury item though. It’s not a financial planning necessity. It’s probably not even a real great use of money, but honestly, neither is purchasing diamonds. They’re not a great use of money because they really don’t go up in value. It’s just an investment in a relationship. It’s a gift. It’s a shiny thing—a nice thing that somebody wanted, and that’s all it is. I suppose if you want to look at it that way, purchasing a dozen red roses on Valentine’s Day is not a great investment because I’ve seen those roses 10 days later—what they look like. You throw them away, right? They’re gone. Is that a good investment? It’s an investment in the relationship. It’s not an investment in flowers. If you were going to do that, you’d buy a rosebush instead of cut roses. They die. They’re already dead. It’s just a matter of how long it’s going to take for them to wither.
That’s the category life insurance is in for me, but it is a legitimate question on your part. You become self-insured by becoming debt-free and having some money. Let’s say the typical family is 52 years old, the kids are grown and gone, and the typical family maybe has $500,000, $750,000, or $1 million in mutual funds. The husband dies. The wife’s going to be just fine. No debt, no kids at home, and $1 million to live on. They’re going to be fine. They became self-insured by building wealth, getting out of debt, and raising their kids to be grown and gone—not living in their basement. That’s self-insured. You’d lose the need for life insurance. That’s why we suggest term life insurance instead of whole life. You don’t need life insurance for your whole life. The only whole-life thing anybody wants is commissions for the whole life of those agents.