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Trevor Tarpinian, CEPA®
Licensed Insurance Counselor
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trevor@tfi4insurance.com

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Life Insurance or GoFundMe?

Crowdfunding seems to open up new possibilities with the ability for one to find working capital for start-up ventures, ideas, inventions, and unique activities. It gives someone the chance to plan in advance as they see donations and commitments roll in for their project. But what about planning after an event, like death? Can crowdsourcing compare to traditional planning vehicles, like life insurance? We used 4 factors to compare the two below.

1.) There's no guarantee the crowd sourcing will meet your goal. Perusing sites like Youcaring.com, one sees around 5,000 memorial and funeral fundraisers. A search for "funerals" presents just shy of 40,000 results nationwide on gofundme.com. Although the kind response by tens of thousands of people is reassuring that there are many selfless, giving people in world, at a glance the majority of fundraisers one scans don't reach half their goal. Compare with a life insurance policy, in which a company is contractually obligated to pay a pre-agreed amount, like $100,000; $250,000; $500,000, etc. If we're comparing the two, there is more certainty with the life insurance.

2). There may be tax consequences. How do you feel about paying taxes? Love paying taxes? Great. You can skip this point. For the rest of us, you should know there is, at the time of this writing, currently no clear-cut reporting from companies that commonly service crowdfunding transactions (like Amazon and Paypal). First, these services are required to send notice to a recipient if they receive $20,000 or more and there were more than 200 contributors involved (I've saved you the time and looked up the US Code for you on this). However, second, a genuine gift from one person to another is not necessarily taxable. Third,  to date one has no control whether a service like Amazon or Paypal will send you a tax form or not. They may treat the gifts as taxable income and send you a 1099-K. Take for example the story of Jay Lake that NBC reported on - he was supposedly given a 1099-k to disclose his crowdfunding collection for colorectal cancer treatment.  Now compare it to this: life insurance benefits can be tax free to individuals. All things being equal, would you rather leave your family with a situation that guarantees a tax free environment or one that is uncertain? The life insurance is more straightforward answer with regard to tax.

3). It may provide a solution in terminal situations.
There is a disadvantage to life insurance: rates are based on age and health. There exist guaranteed-issue policies that will insure you regardless of your health situation, but these policies tend to be graded premium policies. These policies usually won't pay a death benefit if you die within the first several years of the policy (they'll simply refund 100% of your premium). This may provide a solution if you are able to live 2-3 years after obtaining a policy, but won't solve any problems for most terminally ill situations. Here crowdfunding doesn't require one to be healthy like life insurance underwriting and may solve a funding problem for the terminally ill that do not have life insurance in place. 

4). It transfers the emotional, financial, and planning burden on your family.
When we discuss life insurance, most people think money first. However, the insurance may have a much great immaterial value. The emotional and physical loss of a loved one is painful, heartbreaking, and disorienting. This aspect of the loss is only compounded when financial needs are not planned for and left for the surviving family to sort during their grief. As a family, trying to raise $25,000 in less than a month for an unexpected funeral often does not help the grieving process. Leaving the family to turn to crowdsourcing for one's final expenses puts the burden of planning on them. In this regard, life insurance helps not only provide a financial solution to medical bills and final expenses, but it also lightens the planning burden on the family during an event that's trying enough.

When comparing the two, life insurance is more certain with regard to payment, more straightforward regarding tax, more selfless in the planning process, and perhaps more simple in executing. Can crowdfunding platforms like GoFundMe provide a solution for final expenses? Possibly, particularly in cases when someone is terminally ill and no planning has already been done. But if you're relatively healthy, does life insurance generally sound like the better option?

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Posted 7:43 PM  View Comments

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