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Why crowdfunding is not the best insurance policy

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Crowdfunding sites burst onto the scene seven or eight years ago with a revolutionary concept. Through these online sites, ordinary people could raise money from others for anything from new inventions and film-making to helping a neighbor in need. 

In 2012, the founder of Oculus, a tech company, funded the development of his virtual reality headset through Kickstarter; two years later, the company was bought by Facebook. That same year, friends of Major Thomas Kennedy, who was killed by a Taliban suicide bomber in Afghanistan, raised more than $400,000 on YouCaring.com for his family. Crowdfunding was suddenly a new, viable way to lend a hand to people in need.

The evolution of crowdfunding

Over time, crowdfunding has morphed into a platform to finance an array of requests. There are even niche crowdfunding sites dedicated solely to raising money for funeral expenses. Most significant may be the rise of campaigns to crowdfund medical problems and bills. Now, almost half of the money raised on  sites like GoFundMe and YouCaring goes toward crowdfunding medical emergencies and the resulting health care costs — even though crowdfunding shouldn’t be relied on as the primary source for such expenses.

No guarantees

When it comes to crowdfunding, there’s no guarantee you’ll raise anything close to the amount you need, and successful fundraising typically requires a well-planned and coordinated social media campaign. Without that, it’s usually doomed to fail. A recent study found that 90% of GoFundMe medical campaigns did not reach their financial target. A more effective way to protect the health and well-being of yourself and your loved ones is through coverage provided by the right insurance policies, designed specifically to help pay for unexpected illness or accidents. 

The cost of death

Half of U.S. households would feel the financial impact from the death of their primary wage earner in just six months. Surviving family members may take on costs such as burial, outstanding debts, additional childcare and a greater share of mortgage payments. Instead of relying on crowdfunding sites, which are not guaranteed, protect yourself and your family with a life insurance policy. Both term and whole life policies can help cover those costs after the person with the policy passes away, and whole life policies can also serve as an effective enhancement to your overall financial portfolio during your life.

Covering medical gaps

Because of health insurance policies that have high deductibles, or that cover only part of the bills, many Americans lack sufficient health insurance. But there are ways to make sure you’re covered for the unexpected through supplemental insurance policies that can cover costs associated with accidents, critical illness, cancer treatments and hospital stays. These types of insurance pay you a sum of money directly for covered treatments and expenses, instead of reimbursing doctors and hospitals. Check with your employer to see if they offer these products, and if not, look for where they’re sold privately. 

Protecting your income

Disability insurance is used to replace some of the income you would lose if you were unable to work due to an illness or injury. While many employers offer coverage, such policies generally only replace 40-60% of pre-disability salary. See if your employer offers the opportunity to purchase supplemental coverage, which can protect a higher percentage of your salary, or look into buying disability income insurance through a private company if you’re not covered sufficiently at work. 

A reliable choice

While crowdfunding is an innovative mechanism to help launch a product or support a cause, it’s not a reliable tool to cover emergencies. In fact, more traditional solutions like life, disability and other supplemental insurance can offer more dependable protection. 

1 https://www.forbes.com/sites/amyfeldman/2016/04/14/ten-of-the-most-successful-companies-built-on-kickstarter/#69d44bba69e8

2 http://www.cnbc.com/2014/10/27/10-big-crowdfunding-campaigns-making-a-difference.html?view=slideshow&%24DEVICE%24=native-android-mobile

3 http://www.businessinsider.com/crowdfunding-for-medical-expenses-2017-6

4 https://www.buzzfeed.com/annehelenpetersen/real-peril-of-crowdfunding-healthcare?utm_term=.xslmRY0ZJR#.wuxo0Zda10

5 https://medium.com/@simpsoncenter/the-moral-failure-of-crowdfunding-health-care-286c8e1b7b8e

6  https://www.lifehappens.org/industry-resources/barometer2017/

7 https://www.guardianlife.com/workplace-benefits/income-protection