Re: Weaving the Strands: Business, Economics, and Tax Policy 2.0
I took a personal finance class in high school 2 years ago, with the curriculum written by Dave Ramsey specifically for young, stupid high schoolers like I was. He recommended term life over whole. The reasoning was that you should (hopefully) have enough money saved in retirement by age 45-50+ that can go to dependents to live off of should you die unexpectedly. And by that age, your children are (hopefully) out of the house. Sure, you lose your money by living past the term, but the point of life insurance is to ensure emergency cash for loved ones, not an investment where the payoff goes to your estate.
One of the worst things that the life insurance industry ever did was to develop the concept of "needs" analysis. It is merely a cynical manipulative ploy to convince people that they "should" buy life insurance and then try to guilt-trip them into buying more.
The only question that matters (just like any other consideration) is: how much is your life worth? Like any other insurance purchase, most of the time people would want full replacement value.
One can see here how deeply that cynical manipulation has clouded people's thinking. If your home burns down, do you say, "don't replace it, I don't really need that much house after all." ? If your car is totaled, do you say, "don't replace it, I didn't really need that much car."?
If something has value, one insures that value against loss. If you want to tell me that you don't want to value your life very highly, that's one thing. If you are saying, yes my life has value, I just don't want to pay the premiums required to insure it, that's a different thing entirely. Please don't turn a reluctance to pay premiums into some contorted argument that you don't "need" insurance. Life insurance should never be about need, it should be about value. It's the repulsive life insurance industry sales practices, combined with people's resentment at being manipulated, that clouds the conversation.
In the short run, term insurance has the lowest premium for the greatest benefit, but that is only in the short run.
The problem is not at all how much life insurance one "should" want to own, the problem simply reduces down to not wanting to pay the premiums for the amount of insurance that is appropriate.
There is a simple formula: in your 20s and 30s, it is 20 times earned income, in your 40s it is 15 times earned income, and in your 50s and early 60s it is 10 times earned income.
