Theory of Decreasing Responsibility

The theory of decreasing responsibility is a life insurance philosophy promoted by proponents of term life insurance (as opposed to cash-value insurance). The theory assumes that the financial responsibilities of the insured are temporary and insurance should be purchased to offset those responsibilities. These responsibilities include paying consumer debts, mortgages, funding children’s education and income replacement.

With a proper plan, the theory holds that each of these responsibilities is temporary. A person can pay off their debt and mortgage, owning their home outright. Children do grow up and leave home becoming independent of their parents' support. And using concepts like buy term and invest the difference a person should become financially independent having accumulated enough wealth to retire and no longer need to work. At this point the insured could self-insure and discontinue the life insurance program.

The theory also assumes that having investments on hand that produce income or can be converted to cash is preferable to having insurance with a monthly premium. As an example a certain sum in investments, or even as cash in a savings account, is preferable to insurance to the same amount.

The theory holds that with a proper plan the need for life insurance is obviated. The only challenge in this approach is that the insured must take responsibility and consciously plan to become financially independent. If they do not, or are not able, they may not have the assets they need to self insure.

A contrarian view is that this theory relies on stereotypes and fails to consider unforeseen contingencies. Sometimes responsibilities increase instead of decrease. Example 1; a dependent spouse is stricken by blindness or other disability. Example 2: Consider a working couple; both with good incomes. The husband has a disabling illness at age 55, and the spouse quits work to be his caregiver. Group life benefits are lost, and there is no personal insurance. Accumulated savings and investments are exhausted. He dies at age 59 with an outstanding mortgage and no life insurance. If, on the other hand, he had bought a whole life policy at age 35 (instead of the 20 year term plan) there could have been a substantial, tax-free resource. Premiums could have been paid through policy loans against the cash value. If the policy had waiver of premium for total disability, it could have been self-sustaining after 6 months of disability with no premiums. (I cannot furnish a citation, but these are real life situations I have personally seen. Perhaps you have, also.)