Sharings Secret Sauce
Day 19. Shared living and life insurance
Is shared living economically consequential?
It’s unbelievable.
The economics of shared living convey large benefits to the participants. Every parent knows the pay raise when a child leaves the nest. Every Gen Z-er who is on their own for the first time knows the financial payoff from a roommate: Less rent and utility costs traded off against privacy and “me” time. This is illustrated by the story of Jorge Cortez in this open post.
Is it a valid choice to live alone? Of course. It can be a strong preference. Every decision has benefits and costs. Like getting married.
Kelsey and John Madigan are married without a child. Both work and live a life in Miami that is economically different from being single. Shared living accrues benefits to both, but more to the lower income of the two.
Does life insurance need exist for the Madigans? In long-term relationships with shared living benefits, each spouse becomes settled to their joint living standard. You can add a chance that the economic loss to the survivor is important to the painful emotional cost.
Household income is smashed.
The standard of living may be smashed unless the household is living off investments and government benefits.
The Madigan’s story explains.
What is my life insurance need?
Life insurance is needed only if there is economic dependency. Shared living is one example of such a dependency.
What is going on?
Shared living creates a higher per-adult living standard
The higher living standard becomes the norm
Pre-mature death moves the survivor to single-person status, bearing all the costs of living
The decedent is no longer around to consume, which is an economic plus
Whether the survivor needs life insurance depends on the survivor’s income and financial resources immediately after death
If you are single, you don’t need life insurance. If you are married or have a lifelong partner, you may.
The Major Point
Long-term relationships have surprising economic value. It is mostly a secret because few, I assume, are in a marriage for convenience.
Determining whether a need exists and the amount to purchase is in Chapter 8 of our book.
Course notes are below as a PDF and open to all.
I found this article to have an interesting take on shared living and life insurance. I know I always try to look at your articles form the perspective of a college student but I truly believe in the importance of your words as I start to think about the financial implications of future living situations. Whether I have roommate or long-term relationship in the future, the idea that shared living can create a higher living standard per adult in the household, makes a lot of sense and helps me to reframe my mindset on costs vs. benefits. When you also talk about Life Insurance it reminded me to think about how important it is to not just assess current expenses but how long term financial obligations could change in the future and to take that into consideration!!
I think shared living is very beneficial, especially for people my age who are still figuring out where they want to live, what they want to do, and how to manage their finances. It offers a sense of financial relief by splitting all costs of rent and utilities. The point made about life insurance is also very important, especially when living with a significant other because it can ensure financial stability if something were to happen.