Do I Need Life Insurance?
Do you remember what it’s like being a kid with no financial responsibilities? Neither do I. It seems like we have been adulting forever. If life insurance isn’t quintessential adulthood, I don’t know what is. As you are reading and researching life insurance, one of the biggest questions you ask yourself is “Do I even need life insurance?”
Ask yourself this question: Does someone rely on me financially? If the answer is yes, then you likely need life insurance. Let’s discuss a few different types of people and their need for life insurance.
Single? You probably don’t need it.
If you are single and have no children, you probably don’t need life insurance. However, if you’re an ultra-planner or want to have a family sooner rather than later, locking in those low rates while you’re young and healthy can be a wise move.
Here are a few situations in which buying life insurance would be recommended even if you’re single:
Maybe your grandparents are co-signers on your private student loans or your parents co-signed on your mortgage. If you die before the balance is paid, the creditors can go after your co-signers. Life insurance can pay for these debts.
Caring for relatives
If you are caring for siblings or aging relatives you should consider life insurance to ensure that your loved ones are still provided for even if you are no longer around.
Have dependent children? You definitely need it.
Those with children have the greatest need for life insurance. Children rely on you for food, clothing, shelter, medicine, and everything else. If you die, life insurance can continue to fund these things, and it can also pay for hopes and dreams such as college tuition or a wedding.
Let’s take a closer look at specific parental situations:
Dual income families
If your household has two incomes contributing to standard of living, the sudden loss of a parent can cause financial upheaval if there is no life insurance to replace the lost income. One parent is now responsible to provide what two incomes previously did. For example, the proceeds from a life insurance policy can pay off the mortgage ensuring the children do not have to be uprooted from their home or school district.
Let’s face it, the loss of a single parent to a child would be devastating. When married couples purchase life insurance, they often plan with the possibility that one spouse will remain to care for the children. Single parents do not have this luxury and absolutely need life insurance.
When you think of life insurance, you may only think a breadwinner needs coverage and not a stay-at-home parent – this could not be further from the truth. Imagine everything a stay-at-home parent does: babysits, cleans, cooks, transports, grocery shops… the list goes on. According to Salary.com, a stay-at-home mom is worth approximately $112,962. If the stay-at-home parent were to die unexpectedly, life insurance can pay for someone to help with these tasks.
Married? You most likely need it.
You don’t need to have children to rely on your significant other’s income. You’re building a life together and doing so requires money. You are likely both contributing to rent or a mortgage, car payments, utilities, and credit card bills. What happens if one of you were to die prematurely? The death benefit from a term life insurance policy can help pay for those expenses and cover the cost of a funeral.
It’s not uncommon today for couples to be in a committed relationship but postpone marriage. While it’s a little easier to own life insurance on your significant other if you are married, non-married couples can still purchase life insurance on one another as long as they can prove insurable interest.
Insurable interest is when a person can expect to suffer financial loss upon the death of another specific person. Having both names on a mortgage loan, both named on a lease, or owning a business together are just a few examples of how you can prove insurable interest.
The two types of life insurance
There are two main types of life insurance: term life insurance and permanent life insurance.
- Basic, inexpensive life insurance
- Temporary – lasts a certain length of time (typically 10, 20, or 30 years)
- Ideal for most people
- Lasts a lifetime
- Accumulates cash value
- Much more costly than term insurance
- Not necessary for most people
For most individuals, term life insurance is suitable coverage. It is designed to last only during the years in which you have the greatest need for it. Permanent life insurance can be beneficial for more complicated situations such as managing wealth for large estates.
The key benefits
Buying life insurance means you hand over some of your hard earned dollars to an insurance company – so what do you get in return?
- Your life insurance policy will provide significant funds to your loved ones when they need it most, allowing them to grieve without the added financial stress.
- The death benefit is typically considerably greater than the premiums you paid.
- The proceeds are generally safe from creditors. Even if you die with debt, creditors cannot go after the life insurance proceeds paid.
- Life insurance proceeds are typically not taxed by the federal government.
- Peace of mind in knowing your loved ones will be financially protected if you are taken from them too soon.