If anyone counts on your income or would struggle financially as a result of your death, you need life insurance.
Whether or not life insurance is a must depends on how your loved ones would fare financially without you.
But life insurance isn’t limited to couples or parents with income to replace.
If you have shared debts, a business, or lack savings for funeral expenses, you probably need life insurance, too.
Below, we’ll give more insight into who does (and doesn’t) need to buy life insurance.
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Who Needs Life Insurance, Really?
Life insurance is a versatile product, designed to cover everyone from struggling college students with cosigned loans to billionaires with massive estate taxes.
It’s also made to fit all the different stages of life, with policies to suit singles, parents, and retirees, each of whom might need life insurance.
Let’s take a closer look at each of those demographics and more to help you decide whether or not you could benefit from a life insurance policy.
According to a 2017 USDA report, the average cost of raising a middle class child born in 2015 is over $233,000, a figure that will likely continue to rise.
Life insurance is crucial for providing basic care for your kids, whether you’re married, divorced, or a single parent.
It’s especially important for parents with special-needs children, who are likely to face substantial long-term care costs, or those who are looking to meet adoption requirements.
A policy can do everything from ensuring your infants or young children have a roof over their heads to providing them with a college education.
If you are the primary breadwinner in your household, you definitely need to purchase life insurance.
The loss of a stay-at-home spouse can leave a massive financial hole, as well.
Regardless of who earns more money, consider how your spouse’s ability to maintain their lifestyle would be impacted by your death.
Whether you just said “I do” or you’re nearing retirement, would your significant other struggle to keep up with the mortgage, shared debts, utility bills, or other expenses without you?
If you’re single, chances are you don’t need to worry about life insurance.
However, there are two reasons you might:
- Debt: If a parent or a friend cosigned a loan, or you have any other debts that won’t die with you, you need to buy life insurance.
- Funeral costs: If you don’t have enough money in savings to pay for a funeral, you could consider a small policy to cover final expenses.
If you have aging parents who depend, at least in part, on your income, an affordable term life policy could help protect them, too.
4. Individuals with Shared Debt
Do you have any cosigned student or auto loans, or joint credit cards?
Whether you’re a young student or a retired grandparent, if your debts could be transferred to your loved ones, life insurance is essential.
You can easily tailor a term policy to fit your loan and credit repayment timeline, ensuring your loved ones are covered until the debt is paid off.
If you own a home, you need to seriously consider purchasing a life insurance policy.
One of the most common reasons people cite for purchasing life insurance is ensuring the mortgage is taken care of.
Mortgage payments can be suffocating for families when a spouse or parent passes away.
Life insurance can grant you peace of mind knowing your loved ones can continue to live at home without having to move or struggle under the weight of the mortgage.
6. High-Income Earners
In most cases, life insurance is not taxable, meaning your beneficiaries get every penny of the funds you leave behind for them.
The same can’t be said of sizable estates and inheritances.
According to the IRS, if your assets exceed a certain dollar amount, $11,580,000 in 2020, your heirs will be susceptible to an estate tax of up to 40%.
If you fall into this category, life insurance can help your loved ones foot the bill.
7. Business Owners
Are you worried about what will happen to your business and the people you share it with if you pass away?
Life insurance can help with:
- Funding a buy-sell agreement
- Paying off outstanding business debts
- Taking care of estate taxes
You can even purchase key man insurance, a type of policy designed specifically to keep a company afloat if a key player on the team passes away.
Traditional life insurance policies are more difficult to qualify for the older you get.
But as you age, you tend to have fewer dependents, major shared expenses, and debts, diminishing your need for a substantial policy.
However, like young singles, many seniors could benefit from purchasing a final expense policy to relieve their loved ones of the burden of paying for a funeral.
These small policies have minimal approval requirements and are designed with seniors in mind.
Most financial experts discourage using life insurance as your primary investment vehicle.
Why? Permanent life insurance is expensive, especially later in life, and there are more advantageous investing options out there.
However, if you’ve maxed out contributions on your other retirement accounts and actually need coverage, a permanent policy could be a rewarding option.
There are several permanent policy options which provide you with the flexibility to invest with different risk levels and preferences.
Who Doesn’t Need Life Insurance?
Most people will need life insurance at some point in their lifetime; however, now might not be the best time to purchase a policy.
While every situation is different, for the most part, you don’t need life insurance if you can check off the three boxes below:
- No dependents
- No transferable debt
- No final expense needs
Even though life insurance is incredibly affordable, it doesn’t make sense to pay into a policy if you don’t need the protection it provides.
As long as no one will be impacted financially by your death, you can forego life insurance for now.
Do Children Need Life Insurance?
There are mixed reviews on children’s life insurance.
On the one hand, your kids don’t have anyone depending on their income to survive.
However, proponents of children’s life insurance suggest a few benefits, as these policies can:
- Provide for funeral expenses
- Come with affordable premiums
- Create savings fund for college expenses
- Keep up your child’s insurability
While the above benefits ring true and are worthwhile in some circumstances, these policies aren’t worth the cost of coverage for the average family.
A very affordable alternative would be to utilize the Children’s Insurance rider on a parent’s policy.
How Much Life Insurance Do You Need?
It depends. If you’re a young parent with a new home and three children to put through college, you’ll need a far bigger policy than a retiree with final expenses.
However, a common rule to follow is to multiply your income by 7-10x to determine a coverage amount, adding in major expenses and debts.
You can adjust that amount based on your assets, age, and stage in life.
Note: Many people wonder if workplace life insurance is a good idea. While it could be useful as a supplemental policy, it won’t fully meet all the needs above.
Here’s our guide on choosing how much you need.
When Should You Buy Life Insurance?
How much you pay for life insurance is decided by risk factors related to your health and lifestyle.
Chief among those is age. That’s why it’s important to apply for life insurance as soon as you realize you need a policy.
Young healthy applicants will have access to the best life rates, with prices climbing each passing year.
In addition to the cost considerations, you should purchase a policy ASAP (if you need one) because of your loved ones.
Every day that passes without a policy in place leaves them unprotected, a risk that simply isn’t worth taking.