GoFundMe Doesn’t Replace Planning – or Life Insurance

Penn Mutual

By Penn Mutual | September 12, 2017

A growing number of people are turning to GoFundMe to raise money as a memorial fund for those who have passed. According to GoFundMe, the crowdfunding website says it has raised $4 billion for people in need, helping to build funds that go toward final expenses and raising money for surviving family members. While it’s great to see an outpouring of love and support for people in a time of need, I hope that people don’t come to see GoFundMe as a replacement for life insurance.

I’m afraid people are turning to GoFundMe because, as reported by LIMRA, the rate of life insurance ownership in the U.S. is near an all-time low. Some 30 percent of households are completely uninsured, and those that are insured on average have only enough coverage to replace three years of income. If you don’t have an answer when that time comes, you’re at the mercy of other people’s good will. I admire that an organization like GoFundMe is available to help people, but I would hate to see it become something people rely on rather than have it be used for those rare circumstances. As a responsible person, I think it’s our job to make sure that we take care of ourselves and our families.

Insurance companies are there to partner with people to make sure that they’ve planned properly and that when — not if, but when — that time comes, there’s proper coverage in place so that families can live in at least as close to their normal lifestyle as possible. To depend on GoFundMe sends shivers up my spine. Instead of me planning my life insurance, imagine my grieving family now has to plan a GoFundMe campaign. But, what happens if there isn’t a strong community of support through the website to help my family?

A quick look at the campaigns at gofundme.com/funeral-memorial-fundraising show that most are literally to pay for someone’s funeral. Life insurance doesn’t just pay for someone’s funeral, it can also cover other final expenses and continue to support your family, too. Life insurance is really about the living; how do you help the survivors after someone has passed?

Part of the process of buying life insurance is to determine a person’s economic value – what it would take to replace that person’s long-term economic contribution to the family, a business, or society when they were to die. Your economic value is really anything from one times your assets upwards to 30 times your income, depending on your age and financial condition. I cannot imagine that GoFundMe is covering people for their full economic value.

Take, for example, the campaign for a U.S. Army veteran, which has a goal of raising $6,000 for his funeral. They’ve raise almost $5,000 so far. Let’s say he was a young man in his late 20’s and was making $35,000 a year. His economic value to his family would be approximately 30 times his annual income or close to $1,000,000. That amount of coverage could have cost him as little as $400-$500 per year for a term life insurance policy. For $500, his $6,000 funeral would be covered and his family would have received almost a million dollars. Instead, his family is borrowing and pleading for pennies from people who don’t know him.

In another example, four children lost both parents in a wreck on Halloween night. Here the goal is to raise $500,000, which sounds like a lot of money until you think about how much it costs to raise a child over 18 to 20 years, even if you don’t send them to college. The campaign is being run by the police officers who went to the home to inform the next of kin, discovering four children waiting for their parents to return so they could go Trick-or-Treating. It’s heart-warming to see police step in like this, but, even so, I hope this campaign is helping to supplement the parents’ life insurance. These children have had their lives turned upside down. They are still going to grieve, they are still going to be missing their parents, but with a little planning there would be money there for them to live their lives.

There is a difference between certainty and uncertainty. A lot of the events that are funded through GoFundMe are uncertain events. Relatively few people ever have their house burn down or get flooded. Death, however, is a certainty, and you can plan for it. The sooner you plan for it, the more affordable it is and the more benefit you can get out of it while you are alive. Permanent life insurance for example, builds cash value that can be used to pay for college, starting a new business or supplementing retirement income.* That’s a bit of planning that can help keep you from needing to launch a GoFundMe campaign for other events in your life.

This is Life Insurance Awareness Month. It’s important that we use this opportunity to make sure people understand how valuable life insurance can be. As kids are going back to school and the end of the year is approaching, hopefully, people realize that GoFundMe can’t replace good solid financial planning, which includes life insurance planning. Good planning allows families to have some sense of certainty in their future, particularly when bad things happen.

*Life insurance policies contain exclusions, limitations, reductions of benefits, and certain requirements to keep them in force. Accessing Cash Value through policy loans and withdrawals will reduce the cash value and death benefit amounts, and may be taxable.

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