When thinking about life insurance, you might assume its primary purpose is to ensure that elderly folks don’t leave their families with costly funeral and burial expenses. While that’s undoubtedly one of its uses, life insurance can be even more useful for younger individuals who have family members who depend on them financially.
The purpose of life insurance is to offer dependents a safety net and to help loved ones or business partners pay off expenses they become responsible for when you die. It can help your family cover things like childcare, college tuition, a mortgage, or daily living costs.
If you’re an entrepreneur, it can also help others keep your business going. If you were to die unexpectedly, your insurance company would grant your beneficiaries the amount of your life insurance payout (death benefit).
So, do you think you need life insurance at this stage in your life? Let’s walk through several scenarios to find out.
Do I need life insurance?
If you fall into any of the following categories, strongly consider taking out a life insurance policy as a safety net. If you have life insurance through work, make sure you understand exactly what the coverage is and how it works. Investopedia outlines several potential problems with relying solely on employer-provided life insurance coverage.
You can speak with an insurance agent or use an online life insurance calculator to get an estimate of how much coverage you need and how much it could cost you to protect the ones you care about.
If you’re married and share financial responsibilities with your spouse, it’s essential to ensure your spouse is covered if anything happens to you. Things like paying for a mortgage or monthly rent, paying off student loans or credit cards, or paying for funeral expenses could all fall to your spouse.
I’m a parent.
One of the most important times to take out a life insurance policy is when you become a parent. Insurance can help cover debts, daycare, college tuition, housekeeping, and other regular living expenses. Each parent should have their own policy.
Just imagine the responsibilities your spouse could adopt if you weren’t there! Whether you stay home with the kids or go to work every day, the financial value you offer your family is huge. Divorced parents and parents of children with special needs may have even more expenses to consider.
I’m the breadwinner in my family.
As we already mentioned, if you’re a working parent or anyone in your family relies on your income, you need a life insurance policy that would make up for your salary if it was lost. A life insurance policy can ensure your family isn’t left with a heavy financial burden.
I own a home and have a mortgage.
Your home is probably your largest asset. If you’re paying a mortgage and don’t want the entire cost to fall on your loved ones’ shoulders, you can get a life insurance policy to cover the balance.
I own a business.
Do you have partners that would become fully responsible for the business if you died? Life insurance can help protect your business, help beneficiaries pay off debts or estate taxes, and even give your bank peace of mind by proving you’re financially secure, no matter what happens.
Who doesn’t need life insurance?
Here are a few scenarios where you could probably get away without having life insurance—at least for now.
If you’re single, healthy, have no dependents, and have little to no debt attached to your name, you may not need life insurance. It’s always important to consider who would be impacted by your death financially. If you don’t have savings to help pay for expenses if you die unexpectedly, consider taking out an inexpensive term life insurance policy. Then your loved ones won’t be left to cover burial and funeral expenses out of pocket.
Keep in mind that your student loan debt and mortgage loans may not be forgiven if you die. The debt could pass onto your family members or a co-signer.
My children are self-supporting adults, and I’m retired (or about to be).
The older you get, the more expensive your policy will become. This can make it less affordable for elderly individuals. Since your adult children are financially independent, it may be unecessary to pay for life insurance as you get older. Plus, there are other ways for retirees to relieve possible financial burdens for loved ones, such as naming them beneficiaries on retirement accounts or through trust funds.
Sometimes retirees will pay for life insurance to cover funeral expenses, medical bills, or retirement home care for their spouse.
Should I choose whole or term life insurance?
If you do decide to take out a policy, you’ll have to decide between term and whole life. Term life insurance is simpler and more affordable. It covers you for a set period, often 10–30 years. For most of the scenarios we mentioned, we recommend a term life insurance policy as a better way to go. It can cover you during the time of your life when you need it most. You might also have the option to convert your policy to permanent coverage if you want to switch later.
Whole (permanent) life insurance can be significantly more expensive and more complicated, but it covers you until you die—no matter when that is. It also allows you to accumulate cash value. Some scenarios where it may be beneficial to have a whole life policy might be if you
- Have a child who has special needs and will rely on you financially for their entire life
- Have a family history of a pre-existing condition that may limit your ability to qualify for a term life policy
- Are a high net worth individual with estate tax concerns
- Want all of your children to be compensated when you die
If you’re interested in a quote for term life insurance, we’d love to hear from you! You can request a quote online or give us a call. We’ll be happy to answer any of your questions. We also recommend checking out our blog post: 10 of the Best Term Life Insurance Companies in the U.S for a list of companies we highly recommend.