Crowdfunding Life Insurance: A Bad Idea
Individual Life Insurance is a necessity to any sound financial plan, but we are seeing this building block overlooked or ignored when planning for the future. According to the 2016 LIMRA report on Life Insurance Ownership (Insurance Information Institute, n.d.), 56% of Americans do not have any individual life insurance plan in place, rather they rely on the paltry life benefits paid for by their employer. Research shows that low adoption rates for individual life insurance poses a significant social problem in the age of crowdfunding platforms because it discourages the purchase of life insurance, delegates the deceased financial responsibility onto others, and does not raise enough money to replace a life insurance policy.
Research from Think Advisor (Anderson, 2016) shows a tremendous social problem of a discouragement to purchase individual life insurance. In the article titled “Crowdfunding is not a replacement for life insurance", the author quickly finds an example of a couple that put off the purchase of life insurance. The listing for this crowdfunding campaign was “No Life Insurance, Help Spouse". The article describes this couple decided to forgo life insurance and instead took a vacation to Costa Rica where the husband died in a tragic zip lining accident. A person who is capable of zip lining and paying for a vacation to Costa Rica can almost certainly afford even the smallest of life insurance policies. But, the couple decided life insurance is not a necessity and quickly turned to crowdfunding when the money was needed.
Not only is this a perfect example of how crowdfunding platforms are discouraging the purchase of life insurance, but it also touches on the delegation of financial responsibility we ae witnessing. It seems as though all of the marketing and advertising from life insurance companies are proving to be non-effective. Less than half of Americans own an individual life insurance policy, the trend of ‘passing the buck’ onto others seems to be acceptable to those without and individual life insurance policy. One may speculate that the rise of socialism across the globe has given the impression to people that financial responsibility is an archaic practice only reserved for the conservative folk who create and maintain financial plans of their own.
The 2016 LIMRA study of life insurance ownership also shows ownership remains stagnant from 2010 at a 44% adoption rate. The year 2010 correlates with the rise of crowdfunding platforms, which one can connect to the stagnant adoption of individual life insurance. With the low adoption rate of individual life insurance, how do people expect to have their dependents pay for their funeral, debts, and loss of income? Well, as crowdfunding platforms continue to prove,
people are foregoing life insurance in favor of soliciting donations on these sites. This is not a sound financial plan because crowdfunding has proven to only raise enough money to pay a portion of the funeral costs.
As financial advice website Nerd Wallet (Renter, 2016) pointed out, a tremendous gap exists between the typical amount of a funeral and the average crowdfunding amount raised. She points out that the average funeral cost is $7,180, whereas the average crowdfunding campaign on GoFundMe raises approximately $3,000. These statistics are shocking as the crowdfunding campaigns are not even paying for half of a funeral, let alone loss of income, debts, etc. Ms. Renter’s data also shows that the crowdfunding website – YouCaring – hosted 10,117 funeral campaigns in 2015. That’s 10,117 individuals who needed life insurance. She also notes that the bulk of these campaigns involve younger peoples unexpected deaths.
Katie Waters of dailyworth.com (Waters, 2016) explores the inadequacy of crowdfunding as a viable alternative to life insurance in her article titled “Is Crowdfunding a Smart Substitution for Life Insurance?". She found tremendous gap in life insurance for the millennial generation and offers some opinions as to why this particular demographic is adopting life insurance at a lower rate than past generations. Her theory is that millennials see life insurance as an optional purchase, rather than part of a sound financial plan. She also points out that millennials over-estimate the cost of life insurance by 213%, which shows that little to no research is being done on this topic from this demographic. This article makes a great case that crowdfunding platforms have taken the purchase of life insurance off the list of necessities when planning your financial future.
Many people feel that life insurance is too expensive. According to Statista (Statistics and facts about life insurance, n.d.), 64% of Americans believe that life insurance is too expensive. This data indicates the people surveyed have not researched or spoken with a professional about life insurance. While the term expensive is relative to one’s perspective, in the general sense of the term, life insurance is not expensive. If a person looks at the value of the benefit against the premium, an argument can be made that life insurance provides much more value per premium dollar than any other insurance offered.
The many examples of people not having life insurance and turning to crowdfunding for help are staggering. An article by Brian Anderson from Think Advisor (Anderson, 2016) centers on a quickly found example on a GoFundMe page titled “No Life Insurance, Help Spouse”. According to the campaign, a husband died while ziplining during a vacation in Costa Rica. Most able-bodied people who pursue activities such as ziplining in a foreign country, should be able to afford a life insurance policy. This is a heartbreaking story to read, but, it does not excuse the couple for not planning ahead and procuring life insurance.
Chris Huntley of Huntly Wealth Insurance wrote an article titled 3 Reasons not to count on GoFundMe as an alternative for life insurance (Huntley, n.d.). He asserts that crowdfunding life insurance is a gamble with possible tax implications. He notes that individual life insurance premiums are so low that almost anyone can afford a term life insurance policy. This is a great article to read as Mr. Huntley has vast experience dealing with individual life insurance and the objections from clients about buying life insurance.
All of this research points in the direction that people, especially younger, healthy people, are either convinced they will not die, or when they die they have already made the selfish decision to forego the one policy they are guaranteed to use. Just a simple Google search turns up an article titled “Life insurance for retirees: For some it makes sense” (Schwartz, 2014), which discourages the purchase of life insurance for senior citizens.
In conclusion, relying on crowdfunding instead of purchasing life insurance is foolish. Life insurance is affordable, accessible, and flexible with many different policy options. Foregoing life insurance while one is healthy to qualify for an inexpensive policy could be the worst financial choice a person can make. A person will never know if they will use auto, home, or health insurance. The only policy guaranteed to pay out is life insurance. We all live and die, sometimes unexpectedly. That is why owning an individual life insurance policy is the most important decision you can make for your loved ones.