GoFundMe is Not Life Insurance
Have you noticed that almost every week or every month there seems to be a new GoFundMe request? Maybe it’s just me, but I feel like I see one on my Facebook feed at least once a week. Crowd funding requests for things like a sick pet, home damage, uncovered medical bills, or worst yet a premature death.
Unfortunately one of the most recent trends on the internet is the use of crowd funding such as GoFundMe as an alternative to life insurance. A loved one passes away, and you can expect within a few days the GoFundMe campaign will show up on your Facebook feed. I saw one this morning, and while it’s sad, and I want to help, I can’t help but also think “why didn’t he/she have life insurance?”.
There is a difference between certainty and uncertainty. A lot of the events that are funded through GoFundMe are uncertain events. Relatively few people ever have their house burn down or get flooded. Death, however, is a certainty, and you can plan for it. The sooner you plan for it, the more affordable it is and the more benefit you can get out of it while you are alive.
Only 54% of Americans own some sort of life insurance (1). Only 30% are adequately funded.
How much is enough? What is your human life value?
Besides the love, kindness, and emotional support you share, what is the economic value that you provide to your family? Think for a moment if you were killed in an accident that was not your fault. If the person at fault had deep pockets, how much would your family sue for? If they had to appear before a judge and defend the economic value you provided to your family, what would that number be? It’s morbid to think about, and hard to quantify, but this is your human life value.
If you ask your family they will tell you that you are priceless. However If you ask a judge, or a life insurance company, the answer is approximately 15-30x your annual income (depending on your age). Calculate your HLV .
GoFundMe has an average of 22,000 funeral and final expense campaigns active at any moment. On average they raise only $2,200 which is well short of the average cost of a funeral, and nowhere near your human life value.
How does the IRS view crowd funding vs. life insurance?
Donations made to GoFundMe campaigns are usually considered to be “personal gifts” which, for the most part, aren’t taxed as income. However if you raise more than $20,000 or have received more than 200 contributions, the promoter of the GoFundMe campaign will have to complete a 1099-K and report the money to the IRS as income. Generally the funds used for a funeral are not taxable, but everything else is.
Life insurance is tax free because it’s an indemnity. Think about it. If your house burns down and you collect money from the insurance company, it’s not taxable. Why? Because that money is replacing something of value to make you whole. You don’t profit from the insurance payment. The same is true for life insurance. The proceeds from a life insurance policy are designed to replace your HLV and make your family whole for their loss.
It costs money to come into this world. And it costs money to leave it. Don’t force your family to beg for money on the internet after you’re gone.