Ethics Center: Business Ethics

Crowdfunded Death Benefits? The Ethical Imperative of Life Insurance

“No Life Insurance, Help Spouse”

That’s a real headline on a GoFundMe page set up by a woman whose husband died suddenly after ziplining during a vacation in Costa Rica.

“He is still there and I am arranging for his cremation with the U.S. Embassy and need to do a memorial service, etc., and there is no life insurance for my immediate needs. … I would be so grateful to receive funds so that I may cover the bills and our financial matters, which are large as he was the main provider,” the wife says in her message on the page.

As of Jan. 22, 64 people had contributed a total of $7,495. That’s nothing to sneeze at, but it’s certainly well short of the kind of meaningful aid that would have been provided by a life insurance policy.

In fact, according to an article on FOXBusiness, that campaign has raised more than three times the average earned by a GoFundMe funeral, tribute or memorial campaign, which it pegged at $2,200, with an average individual donation of $65, for more than 22,000 campaigns. Another fundraising site, YouCaring.com, says its average funeral-related campaign raises about $2,000. That’s far short of the $7,000-plus cost of the average funeral.

How often do you hear on the local news about a tragic death where the family of the deceased is immediately thrust into financial hardship because there was no life insurance? This type of news story typically ends with the anchor noting that a GoFundMe page or something similar has been set up to help the family.

A case in point was a story early this month about a car accident in Nebraska that killed a 44-year-old man who was the passenger, while the driver, his 21-year-old daughter, suffered serious injuries. A story on WOWT News in Omaha says the family set up a GoFundMe page, which includes a touching letter detailing the hardships now facing the family.

It turns out that just last year, the deceased made the difficult decision to stop paying for life insurance so he could cover the cost of medical supplies for his son, a Type 1 diabetic.

According to the page, “He now leaves behind a widow in tears not only for the loss of her love of over 20 years but also tears of not knowing how she's going to afford to bury her husband, not knowing how she's going to be able to afford to pay for the insulin for her son, not knowing how she's going to be able to pay the utility shutoff notices in a broken down house with a broken down vehicle in the front yard.”

Certainly friends and often strangers who hear about a tragedy respond and donate what they can. Occasionally you hear about communities rallying around a family in trouble and raising as much as $50,000. But more often, the amount raised is much closer to the aforementioned $2,000. There is no income replacement, no funds to help the family maintain its standard of living or help cover costs for college.

Crowdfunding is not a replacement for life insurance, and life insurance agents should explain why with facts such as those above if a prospect raises this objection. You can’t make them buy, but you can fulfill your ethical obligation and move on with a clear conscience by educating them about the harsh realities when a loved one leaves behind a family without life insurance.

It’s too bad it’s not harder for the good folks at Life Happens to find deserving candidates for their Life Lessons scholarship program. But with so many people failing to see the importance of protecting their family’s future with life insurance — and not enough agents informing middle- and lower-income families about it — there will be plenty of tragic stories to choose from again this year.

Originally published in Advisor Ethics on LifeHealthPro.com on 1/27/16. Reprinted with permission.

For information on affordable errors and omissions insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.