If I Probably Will Not Receive a Life Insurance Benefit, Why Buy It?

Immortal Sergeant (1943)

OK. He probably doesn’t need life insurance, then.

“Insurance is the only product that both the seller and buyer hope is never actually used.”
– Unknown

Chances are pretty good that as long as you’re buying life insurance for insurance’s sake – meaning income replacement – and not as an investment or for some other reason, you’re not going to receive the benefit.

OK. Well, you wouldn’t receive the benefit in any case. Someone else will. You’d be dead.

As we saw in “Do I Really Need Life Insurance?”, according to the Social Security Administration, people between 25-45 are pretty unlikely to pass away in the following 21 years.

Yet, financial planners advise people who do not yet have sufficient wealth to survive the death of a family member to get insurance.

Pay for life insurance when you’re probably not going to die?

What gives?

In order to understand that line of reasoning, let’s look into the realm of investing. With a quick little lesson there, we can draw a parallel and help you to understand why you want to have appropriate insurance coverage.

How Investing Relates to Life Insurance

Do Financial Planners Know How to Value Your Company?

Michigan City for sale

But what’s it worth?

“Amidst all the hype and hoopla around this business, I wanted to emphasize the challenge—it is seductive but the failure rate is very high. And those who fail have no good place to go.”
― Mahendra Ramsinghani

I’ve been fortunate enough to have a company where I eventually saw three different offers for either the company or for my share.

Once we got beyond the initial stage of sniffing each other out from the first potential buyer, I knew I had to get my arguments put together. A critical piece of information I needed to know was just how much our company worth.

I’d taken enough classes in my MBA program that I knew how to create a valuation, and what other factors to incorporate since we were a privately owned, closely-held enterprise. I ran the first evaluation of what I thought that we should reasonably expect for our company.

However, I’d never run the sale of a company before. I wanted to bring in an experienced hand who had done a ton of sell-side M&A deals and who could patiently and forcefully argue our side’s position to our potential buyers without ruining the relationship between the principals of the potential buyers and our company.

We hired a good friend of mine from my business school to run the final valuation and the sell-side negotiations for us, and he was worth every penny of the fee we paid to him.

It turns out that my valuation was pretty close to what his team arrived at after their analysis. But, even though my analysis was correct, there is no way I would have wanted to try to run the sale on my own.

If you’re a business owner, though, who doesn’t have a deep network of experienced colleagues who ran private business sales as their day-to-day job, who do you turn to if you want to sell your company or you think you might get an offer on the table?

A lot of business owners will turn to their financial advisors. They help with the other aspects of financial life, and businesses make money, so it makes sense, right?

Not so fast.

I’ve sold a company. I’ve done the coursework for the CFP® certification. I’ve passed the CFP® exam.

I can tell you from personal experience that there’s very little overlap in the two skill sets.

Do I Really Need Life Insurance?

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