When Should I Get Life Insurance?

Coverage is most affordable when you’re young and healthy

A young couple sitting on a sea wall.
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If you die unexpectedly, your loved ones could face financial hardship. Life insurance can offer protection, but getting coverage can seem confusing as you juggle all of life’s other responsibilities. How do you know when you need life insurance, and what should you think about as you evaluate coverage?

The best time to get insurance is often when you’re young and healthy, but it can be helpful in other situations as well. We’ll review why buying early is best, and we’ll highlight several situations when life insurance might be important.

Key Takeaways

  • Life insurance can provide essential funds to prevent financial hardship, even while you’re still alive, in some cases.
  • Coverage is typically most affordable when you are young and healthy.
  • While people with children often need life insurance, it can be helpful in other situations.
  • Even if you get insurance from your job, you might need additional coverage, or you might want your own policy.

Why You Should Get Life Insurance

Life insurance can protect loved ones by providing a substantial amount of money upon your death. The death benefit is typically tax-free to beneficiaries, and those funds can pay off debt or cover everyday expenses for survivors.

When is the right time to buy life insurance? The short answer is to buy as soon as you realize you need it. Costs increase as you get older, and as time passes, you run the risk of developing (or finding out about) health issues that could make you uninsurable or make coverage more expensive.

Kyle Hill, CFP from Hill-Top Financial Planning, LLC, gets proactive when clients anticipate a future need for insurance. “With the young families that I work with, if there is any potential for having children, we look to get something in place sooner rather than later because you never know what could happen to make you uninsurable in the future,” Hill told The Balance via email.

If anybody would face financial hardship after your death, it’s wise to explore life insurance coverage.

The death of a working parent is a classic example of the need for life insurance. However, protection can be helpful in other circumstances as well. For example, if a stay-at-home parent dies, a surviving parent would need to arrange for child care (and pay for it) plus all the other household chores the stay-at-home parent did, or stop working—both of which have financial impacts.

Is My Life Insurance From Work Enough?

If you get coverage from your job, it’s still critical to examine how much life insurance you need. Your job’s coverage might not be sufficient. For example, some employers provide a death benefit that’s equal to your annual salary (or a small multiple of your salary), although you might have the option to buy more.

Unfortunately, one year of earnings might not be enough to support your family. Some rules of thumb suggest buying 10 times your salary, while others look at your financial obligations to determine the right amount of life insurance.

There’s also the question of what happens when you leave your job. In some cases, you can take that coverage with you. However, that option isn’t always available; and even if it is, the premiums on that policy might rise over time, ultimately making it unaffordable.

If you know you’ll need insurance and you might change jobs, it could make sense to buy the needed policy on your own.

When To Get Life Insurance

Starting a Family

Young and growing families often need life insurance. When you have children who can’t support themselves, your death could leave them in tragic circumstances. Plus, a surviving partner may be left without any household income, or with demands (including child care) that prevent them from earning an income.

Life insurance can help a family replace income from a wage earner, pay off debt, fund education for children, and avoid financial hardship. For many families, term life insurance is an excellent solution.

“I'm a big advocate of level term life insurance, especially for young families,” said Hill, pointing out that relatively small premiums can buy a sizable death benefit. Plus, Hill noted, children might become self-sufficient after 20 years, and you could accumulate assets over that period that support a spouse.

Special-Needs Children

Life insurance often makes sense if you have dependents who will not be able to support themselves financially, such as special-needs children. As a parent, you provide for your dependents during your life, but you won’t live forever. Life insurance is one way you can help ensure that children with special needs are financially secure.

Megan Kopka, CFP of Kopka Financial, LLC, told The Balance via email that a permanent life insurance policy may be helpful for some families in this type of situation. For example, your policy might fund a special needs trust with assets that support a child for life. Kopka points out that a second-to-die policy on both parents might be a relatively affordable solution, since both parents must die before any payout, which reduces insurance premiums.

Provide for Loved Ones

Even if you don’t have children, it could make sense to buy insurance. For example, if you die, the emotional impact on your spouse or partner might make it hard to work full-time. Would you want to go to work immediately if the roles were reversed, even if you could keep paying down the mortgage? Especially if financial independence is a long way away, some type of coverage might be appropriate to pay off a mortgage or provide relief.

Final Expenses

The median cost for a funeral with a viewing in the U.S. was $7,848 in 2021. If you’re concerned about final expenses for yourself or a loved one, final expense insurance might be a solution. Those policies often have relatively small death benefits—with relatively small premiums—but they can help ensure you have a meaningful memorial. A final expense policy can also pay off small debts or medical bills.

There are numerous situations where life insurance might be helpful that aren’t covered here. Speak with a financial planner and an insurance agent to explore solutions (with and without insurance).

How To Get Life Insurance

To get insurance, you need to apply with an insurer by providing information about yourself. You typically need to answer a few questions about your health, any medical conditions, and hobbies, as well as other personal information. Depending on the details of your application, you might need to provide additional clarification or complete a medical examination.

You can often apply online, and you might get a decision within minutes. However, in some cases, you’ll apply with a life insurance agent, who may be helpful when you’re shopping among insurers and looking for a policy that fits your circumstances.

If you’re approved for coverage, you pay premiums to keep your policy in force. It may also be possible to pay a premium with your application and get coverage in place at the same time as you apply. Ask your insurance company or agent how to get covered as quickly as possible, and explore the pros and cons of different policy types.

Frequently Asked Questions (FAQs)

When should I get life insurance for my child?

“It almost never makes sense to get a life policy for a child, unless the child is the breadwinner for a family,” according to Trishul Patel, CFP, MBA of Investing Forever, LLC. “Often, these types of policies are sold as tax-efficient savings vehicles for children. But there are far better ways to support children than purchasing expensive whole-life policies for them,” Patel told The Balance via email. However, Hill pointed out that you can often include a child rider on your own policy, which can cover burial expenses or other costs.

How do you get life insurance after you have been denied?

Look for policies that are available with preexisting conditions or that do not require in-depth underwriting. Guaranteed issue and simplified issue policies might be available with a short questionnaire, although benefits are often limited. Coverage through an employer may also be an option, especially if it’s a permanent policy that you can take with you if you leave your current employment.

Do you have to pay taxes on life insurance payouts?

Most people who receive a payout from a life insurance policy do not owe any taxes on the death benefit. However, any earnings on the proceeds of a life insurance policy may be included in your taxable income. Ask your CPA for guidance before you file a tax return.

Article Sources

  1. National Funeral Directors Association. “Statistics.” Accessed Feb. 9, 2022.

  2. Guardian. "Can I Buy Life Insurance if I Have a Preexisting Condition?” Accessed Feb. 9, 2022.

  3. IRS. “Life Insurance & Disability Insurance Proceeds.” Accessed Feb. 9, 2022.