Go Fund Me: The "New" #Life Insurance...Or Not?

Generally, the person who sets up the page sets a financial goal that they hope to achieve through these individual donations. The financial goal can be as low as $1,000 dollars to tens of thousands of dollars.

Some of the reasons that people use to set up these crowdfunding pages include reasons such as:

• Funeral Costs
• Critical Illness Costs
• Accident Costs
• Co-Insurance health group plan deductibles
• Health costs not covered by a plan

Some of these reasons are commonly used when people experience unexpected financial costs, or don’t have life insurance that can cover them especially when the person is either expected to pass away soon or has already done so.

The question is whether is would be better to spend a few dollars per month on a life insurance policy which can more than adequately cover many of these unexpected expenses or is it better to put your hope in setting up a crowdfunding page?

Life Insurance Versus Crowdfunding

There are also situations when crowdfunding may not be the best route to go. Let’s take funeral cost for example. The average cost of a funeral in the U.S. according to the National Funeral Directors Association is just over $7,000.

If that is the bill you expect to incur from a loved one who is about to pass, will you actually be able or can you really depend on a crowdfunding site to raise the funds you actually need?

There are a lot of sad tales of people who are trying to raise money to pay for the loss of a loved who had no life insurance and surviving family members who didn’t have the cash to pay for a funeral.

That’s one of the first problems I noticed when it comes to these sites is that they often fall short of their goals.

What happens if they don’t succeed in raising the full amount of the money they need?

Well, on the GoFundMe platform, there are more than 22,000 funeral and tribute campaigns, but on average they raise

$2,200 which is well short of the average cost of a funeral.

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. 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 as a Life Insurance Financial Professional, it’s my duty to should explain why with facts such as those above, if anyone raises this objection. I can’t make a person buy, but I must fulfill an ethical obligation and move on with a clear conscience, by educating as many people possible about the harsh realities when a loved one leaves behind a family without life insurance.