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Why crowdfunding is not life insurance

Young girl getting a big cuddle from her mom
Justin Paget/Getty Images

When tragedy strikes in your community—like a house fire or a natural disaster—many community members take to crowdfunding platforms like GoFundMe or Facebook Fundraisers to request, and provide, financial assistance. Make no mistake: Those donations are a blessing and a powerful act of generosity. But when it comes to paying for funerals or other after-life expenses, crowdfunding cannot replace the importance and value of life insurance.

The rise of crowdfunding for unexpected expenses

Crowdfunding is a noble concept. This kind of giving predates social media and the digital age—communities have long raised collections to help members in need. In modern times, sensationalized news coverage has made successful digital fundraising stories seem like the norm. This can create a false sense of altruism and heighten the expectation that crowdfunding is a dependable solution.

The excessively funded campaigns you hear about may have been strategically marketed on social media or just happened to be picked up in the news cycle. But when it comes to the financial and physical health of your family, you want to ensure you're leaning on predictable outcomes.

Crowdfunding's limitations & lack of guarantees

In actuality, the costs of an unexpected death and related expenses often far exceed a fundraising goal. Funeral expenses can be several thousand dollars. And if you were to die as a result of an illness that required ongoing hospitalization, your family could face an astronomical bill to settle if they'd have to pay out of pocket. Not to mention, few fundraising campaigns address hidden financial factors like lost income, added childcare costs and keeping up with your regular bills and debts.

Ultimately, less than 12% of medical-need crowdfunding campaigns even reach their goals, and on average, accounts raise less than $2,000. It's also important to realize that crowdfunding websites are businesses. They usually charge a fee that comes out of the money donated.

Preparing for misfortune by having life insurance in place can take the guesswork out of an already emotional time. Your loved ones and the wider community still can give support, but you won't have to depend on that generosity to pay for necessary expenses. In fact, having insurance to cover practical financial matters may mean donations can be rerouted to a wider cause—like helping to pay for your grandchildren's education, continue to support your church or favorite charity.

By relying on life insurance over a crowdfunding campaign, you're also taking the burden off the people you love to create and run an online fundraiser in the wake of your loss. That's time and energy they can instead use to grieve and to support one another.

Why is it important to have life insurance?

Many people use life insurance to replace lost income and continue providing for their families after they die. And with many options available, life insurance can offer a far more customizable, dependable and comprehensive form of protection than most crowdfunding campaigns. With life insurance products, you pay a premium to keep a policy active, or in force. In exchange, your beneficiaries receive a payout after you pass away. For many healthy adults, the premiums are relatively small compared to the death benefit life insurance pays.

Term life insurance is often the most affordable option and can be a flexible starting place for someone mainly looking for that death benefit. Permanent life insurance comes with more options to consider. Whole life insurance, for instance, offers the additional benefit of being able to withdraw some cash value during a tragedy that doesn't involve loss of life.1 You also can cover your child with a permanent life option called juvenile life insurance, which lasts for your child's lifetime, even if they develop a health condition later in life.

Planning to protect your future

Contributing to a crowdfunding campaign is an act of compassion, but the ripple effects of proactively protecting your family through insurance are numerous.

Thrivent financial advisor can help you consider what kind of protection fits your goals and your dependents' needs. If you experience an unexpected loss, life insurance can allow your family members to focus on caring for each other and healing.

1 Loans and surrenders will decrease the death proceeds and the value available to pay insurance costs which may cause the contract to terminate without value. Surrenders may generate an income tax liability and charges may apply. A significant taxable event can occur if a contract terminates with outstanding debt. Loaned values may accumulate at a lower rate than unloaned values. Contact your tax advisor for further details