In the Hour of Need: Life Insurance in the Real World
When families run into financial trouble, sometimes they look to cutting insurance premiums as an easy and painless way of slashing expenses. This is understandable. But in reality, too often we see people let life insurance policies lapse - just when their savings is depleted and their families who depend on them are at their most vulnerable.
But life insurance is critically important to the families that need it.
Protecting a Family and Small Business
Brad Cunard and his wife Lisa believed very strongly in planning for financial security for themselves and their two young sons, Owen and Max. So when they started a business with two college friends, they knew they needed to practice sound business succession planning. And so the four partners entered into a buy-sell agreement- each buying a policy on each of the other partners. This is a standard business practice: If a partner dies, the remaining partners have all agreed to buy the deceased partners' business interests from his or her heirs. That protects the heirs and the business alike, since it ensures that the business is not saddled with a disinterested partner who inherited his or her shares but has not expertise in running the business. It also protects the heirs, who generally would rather have cash than interest in a small business they might not know how to run.
The life insurance policy ensures that when a partner dies, the cash is available for the remaining partners to buy out the deceased partners' family.
Additionally, Brad and Lisa also bought additional life insurance on one another - to protect themselves against the loss of income and the life disruption that inevitably occurs when a family member dies.
Tragically, that turned out to be a crucial decision for these partners. One stormy day, Brad and Lisa left the office together to pick up their young sons from school. The storm increased in intensity while they were driving. They picked up their two boys, and turned around and headed home.
The high winds knocked down a large tree - crushing the Cunard's family car.
Lisa and both children were killed.
Because of the forethought and careful planning, Brad explains that the insurance money he received from Lisa's death gave him time to heal and find his way, and to discover a way to start living again after the tragedy. "The money won't bring Lisa, Max or Owen back, but it makes the existence I find myself in easier. I don't have to work while I'm not ready, or sell my house because I can't afford the mortgage. I've been able to think slowly about my future."
The insurance money also helped keep the business operating, despite the death of one partner and the staggering level of grief that affected the other. Good planning allowed all affected to find a way to continue living without the added burden of losing financial security at the same time Brad lost his loving family.
George Johnson, an insurance agent in Burlington, North Carolina, tells the story of a client of his named Jenna. She was in her 20s, and struggling financially. The job market in her area was tight, and she had few marketable skills. She was forced to move in with her 45-year-old mother. But Jenna was also the single mother of a young daughter.
After meeting with Jenna and collecting her basic financial information, George looked her in the eye and posed a simple question: "If something should happen to you, who would care for your child?"
Jenna went ahead and bought a life insurance policy she could afford.
Less than a week later, Jenna died in an auto accident.
George says that he will never forget the gratitude on the mother's face knowing that she would have the means to care for her granddaughter after the loss of her own child, and he knew that the future of the young toddler who had lost her mother would at least be more financially secure than it would have been otherwise.
It could have been worse: Many times, children of single parent families go totally unprotected. When this happens, they frequently go into foster care, only to be completely financially responsible for their own futures with no support when they turn 18 years old. George relays that after 24 years in the insurance business, he never believed in the importance of good life insurance coverage more than he did the moment he learned of Jenna's death.