Is Crowdfunding a Smart Substitution for Life Insurance?

Beginner’s Guide to Life Insurance Part Three: Millennials, Crowdfunding, and Life Insurance

My heart sinks every time I open Facebook and see a crowdfunding link with a picture of a young family. Inevitably, the text on the page contains a fundraising plea due to an unexpected illness or death. I saw it again just yesterday. This time, the plea included a sentence I see far too often in these stories: “Unfortunately there was no life insurance.” I can hardly bring myself to look at these anymore because they send me into a frustrated rage. It’s not because I am heartless; the opposite, really —  it’s because I care too much.

Crowdfunding is Inadequate
My experience in the financial planning industry tells me that the amount these efforts raise — even when it’s tens of thousands of dollars — will not be enough to financially sustain the survivors. The family’s loss of income magnifies the tragedy of a premature death, which is already a devastation from which they will struggle to recover. What frustrates me the most is that life insurance or disability insurance would have probably eliminated any need for a crowdfunding campaign in most of these cases.

Life Insurance Equals Peace of Mind
Having adequate life insurance provides you with peace of mind, knowing that your family could continue on, financially, in the event of your illness or death — without depending on the $25 or $100 contributions from others. While contributing to a crowdfunding campaign is a nice way to show support for a family suffering a loss or injury, it should not serve as the main source of funding in the event of a tragedy. That is what life insurance and disability insurance are meant to do. It is far easier to pay for a $300,000 term policy than it is to raise $50,000 online.

The Life Insurance Generation Gap
The millennial generation is one segment of the population that uses crowdfunding campaigns regularly. Recent studies and articles support this, suggesting that millennials are the most uninsured generation. But why? Getting life insurance was once a part of the “adult checklist” that included getting a job, getting married, having a baby, and buying a house. This generation has seen an omission of life insurance from that list, and it has to stop. The risk of financially impacting someone you love with your untimely death is still as present as ever, and it’s a hole that is much too large for a crowdfunding account to fill.

Why Millennials are Underinsured:
While there is no magic bullet answer as to why millennials have eschewed life insurance, I believe these factors come into play:

1. Insurance is viewed as a voluntary expense. Many millennials began entering the workforce during a recession when there was a surge in unemployment and underemployment, and sought to cut certain “non-essential” costs. Kimberly Palmer elaborates on this theory in her article, “Do You Have Enough Life Insurance?

2. They feel invincible. Millennials have only been in the workforce for a maximum of twelve to fifteen years, and perhaps have not seen many coworkers or friends succumb to serious injuries, illnesses, or accidents yet.

3. They don’t understand life insurance. Sometimes, it just comes down to a lack of knowledge. If you don’t have a grasp on the types of life insurance and how to obtain coverage, I recommend that you read part 1 of this life insurance series.

4. They view parents as acceptable backup plans. Just this week, a millennial told me that her plan in the event of a disability was to move back in with her parents and have them care for her. Regardless of whether your parents are willing to do so, chances are they are not financially preparing to take care of your obligations if catastrophe strikes. It is time to take responsibility for your own finances, and insurance falls squarely within that box.

5. They think it is too expensive. One big reason millennials believe they cannot afford life insurance is because they don’t really know how much it costs! LIMRA — an insurance and financial services research and consulting firm — reported last year that millennials overestimate the cost of life insurance by a whopping 213 percent!

6. It’s on the long-term to-do list. Even items at the top of the non-urgent checklist never get done. Obtaining life insurance belongs on the priority, or very urgent, to-do list.

Seriously, it’s time to start adulting. Set a deadline and knock this out already. Put in the time to research life insurance and disability insurance, or consult with a Certified Financial Planner™ to see what type of policy makes the most sense for you.

Katie Waters is a member of the DailyWorth Connect program. Read more about the program here.

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