Crowdfunding Like GoFundMe Is Not Life Insurance
While crowdsourcing platforms can most certainly act as a lifeline for some people, it’s no substitute for the security and peace of mind that comes with the right life insurance policy. Why? Because, simply put, a crowdfunding platform like GoFundMe is not life insurance.
Every now and then, a heartbreaking crowdfunding campaign makes the rounds on social media. Young siblings left without parents after a fatal car crash. A pregnant mother of three loses her husband – and the main income earner – in their family. A husband and father faces the emotional challenge of losing his partner to a terminal illness and the financial challenges that resulted from expensive medical treatment, time off work, childcare costs, and funeral expenses.
These are just some examples of the real-life stories that tug at our heartstrings and get many of us to act – even if just to make a small donation through crowdfunding.
While crowdsourcing platforms can most certainly act as a lifeline for some people, it’s no substitute for the security and peace of mind that comes with the right life insurance policy. Why? Because, simply put, a crowdfunding platform like GoFundMe is not life insurance.
Understanding why
For individuals and families without life insurance, the allure of these platforms is crystal clear. They can appeal to their community for small monetary donations with the goal of collectively raising enough money to fill in the financial gaps after an unexpected loss.
But there’s one problem: If you look at a platform like GoFundMe, not even 12% of the campaigns actually meet their goal (source). Not to mention, the most successful campaigns are usually those that make headlines, and unfortunately, not all of these stories do.
Another thing to consider is that a portion of donations go straight into the platform’s pocket – “a 5 per cent fee from each donation, a processing fee of three per cent and a 30-cent charge per donation,” to be exact (source). So a successful GoFundMe that raised $500,000 would result in $40,300 that the person in need will never see. And for a less successful campaign – where every dollar counts – that money could have made a meaningful difference.
The reality is that despite good intentions, crowdfunding platforms like GoFundMe can’t always meet the financial needs of a grieving family.
What life insurance means for grieving families
When you purchase life insurance, the financial security of your loved ones is guaranteed. If you are young and healthy, a small upfront cost now can mean a significant payout to your family after you pass. Not only that, but your loved ones won’t have a financial burden to bear in addition to grieving your loss.
Sure, they could turn to a crowdfunding platform like GoFundMe, but who wants to start fundraising while in mourning? And if they’re part of the 88% that doesn’t reach their fundraising goal, what happens next? The uncertainly only adds to the emotional stress that follows the death of a loved one.
With life insurance, a grieving family would receive a lump sum payment that they can put towards any number of things, including funeral expenses, mortgage payments, income replacement, childcare costs, and more.
And while a crowdfunding payout may be taxed – the CRA reviews these on a case-by-case basis (source) – a life insurance payment is never taxable. Plus, there are no hidden fees associated with a life insurance purchase. You know exactly what you’re paying for, meaning there are no surprises when a family needs it most.
Not to mention, a good life insurer will offer additional supports, like bereavement counselling and other resources for beneficiaries.
Types of life insurance
So what type of life insurance is best for you and your loved ones?
While life insurance can feel confusing, let’s divide it into four different categories to make it easier to understand. And if you still have questions, a Serenia Life advisor can help you decide which of these options are right for you.
1. Temporary needs: Term life insurance
Term life insurance is a good way to ensure temporary debts, like a school loan, credit card debt, or your mortgage, are paid for. Plus, it’s a great way to protect your children until they reach an age when they can cover their own expenses and save for the future as working adults. One of the best parts of a term product is its flexibility and affordability. Not only can you choose 10-, 20-, or 30-year term based on your needs, but the cost is low when you are young and in good health.
2. Final Expenses: Term to 100 life insurance
Term to 100 life insurance is an affordable way to cover final expenses, and is more comprehensive than funeral insurance. It might also be a good option if retirement is on the horizon and you want to give your children the opportunity to pay down debt or put money aside after you’re gone. As long as you continue to make the affordable monthly payments (up until your 100th birthday), you’ll remain covered for life.
3. Lifetime Coverage with an Investment Component: Whole life insurance
Whole life insurance is a great option if you’re looking for protection with a growth component. That’s because whole life insurance comes with a cash value1 that you can access later in life to pay for things like a child’s post-secondary education or to fund your retirement living. Plus, if you live a long and healthy life, the cash portion of your policy could increase substantially, letting you leave a large inheritance to your children. And with whole life insurance, there’s also a 20-pay option, where payments stop after 20 years – but coverage lasts your entire life.
Note that whole life insurance is most affordable – and has the most opportunity for growth – when purchased for a baby or child. If life insurance for a child seems strange to you, remember that it has nothing to do with a child’s death and everything to do with planning for a child’s nice, long life. Learn more about child life insurance.
4. Joint Life Insurance: For couples and business partners
Joint life insurance for couples is a great way to ensure your debts are paid and your children are taken care of, while the option for business partners means the business you worked so hard to build will be protected well into the future. Keep in mind that the way this type of life insurance works is that the payout is received after both partners have passed. So if you’re looking to protect your partner as well as your children or business, this may not be the best option for you.
The real advantage of joint life insurance is that it’s more affordable than buying two single policies, especially if one partner has an illness that makes individual insurance too expensive. And for socially conscious businesses, it can be an ideal way to leave a donation to a cause your business supports.
Compare: Crowdfunding is not life insurance
In the table below, you’ll see why crowdfunding platforms, like GoFundMe, are no replacement for life insurance. Compare:
| Crowdfunding | Life Insurance | |
|---|---|---|
| Is it reliable during uncertain times? |
No – This option comes with the anxiety of waiting and hoping for donations to come in |
Yes – Your loved ones will have the relief of a guaranteed payout2 when it’s needed most |
| Does it provide sufficient financial support? |
Unknown – This can result in fear that funds raised may fall short of what’s actually needed |
Yes – They can take comfort in knowing expenses will be taken care of |
| Will your loved ones feel like a burden? |
Possibly – Your loved ones may experience stress and even shame when asking for financial help during a time of loss |
No – They can enjoy peace of mind that comes from you having planned ahead |
A roller coaster of emotions
As you can see from the table above, the risk of relying solely on this type of platform can create a huge emotional toll on families, as they experience the uncertainty and unpredictability of the roller coaster that is crowdfunding. The ups and the downs are the last thing a grieving family needs during a period of mourning. And the pressure to go public to ask for help can feel overwhelming during an already challenging time.
An act of love
While it may seem strange to think of life insurance this way, purchasing it for yourself is perhaps one of the most selfless acts of love out there. Hear us out: Seeing that your loved ones will only receive the money after your death, you certainly won’t benefit from it. But it can be one of the best ways to protect those you love the most once you’re no longer around to do the protecting. How selfless is that?
Case study
Consider this young couple’s situation:
Joel and Mina have two young kids. They recently moved into a home in a neighbourhood they love, but they’ve taken on a mortgage with an amortization period of 25+ years. After interest rates went up, their monthly mortgage payments spiked, and they are currently just getting by each month. If one of them were to pass unexpectedly, the living spouse would have no choice but to sell their dream home and move into something much smaller, in a neighbourhood across town. In this scenario, Term 30 life insurance could save the day. It’s a low-cost option that provides financial protection for the term of their mortgage, and while their kids are still at home. If one of them were to pass within the 30-year term, they wouldn’t have to worry about living on a single salary or move their children away from the home and neighbourhood they grew up in.
Can GoFundMe and life insurance work together?
While relying on crowdfunding alone is taking quite a big risk, using it to complement your life insurance could be an option. While the right life insurance should be able to cover your needs, there may be expenses that come up that you may not have anticipated. For example, if our friend Joel (above) were diagnosed with a serious illness that required months of expensive treatments before he passed, Mina may end up needing a bit of extra help. That’s where crowdfunding should come in.
Keep in mind that the beauty of crowdfunding lies in the fact that it’s still rare enough to move a community to action. If we start asking for too much, too often, we risk alienating those who may have otherwise helped. With life insurance on the other hand, we are not depending on others to help us through a tough time – especially when so many Canadians are already struggling financially.
We said it before, and we’ll say it again: Crowdfunding is not life insurance. It is always better to speak with an advisor and plan ahead for a guaranteed payout – rather than relying on a platform with zero guarantees.
The bottom line
When you depend on someone’s income, losing that person can mean layering financial hardship on top of the emotional stress. The reality is: If anyone depends on your income, you need life insurance.
Ready to learn more? Book a no-obligation call with one of our friendly Serenia Life advisors today!
Disclaimers
1 Cash values are accessible via a withdrawal, policy loan, or surrender. These may be subject to taxation and a tax slip may be issued. Accessing the policy’s cash value will reduce the available cash surrender value and death benefit.
2 Guarantee is subject to premium payments being made on time and adherence to all policy conditions.
