Who Needs Life Insurance?

Learn How and When You Might Want Life Insurance

Woman looking in distance thinking about insurance options
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Life insurance is designed to protect your family and other people who may depend on you for financial support. Life insurance pays a death benefit to the beneficiary of the life insurance policy. Over the years, life insurance has also evolved to provide options for building wealth or tax-free investments. 

However, even with those basics in mind, you may have a lot of questions about life insurance. Is life insurance only for people who have a family to support? When should you buy life insurance? Here's when life insurance is a good idea to buy based on different situations. This list will help you decide if it's time for you to contact your financial advisor and start looking at your life insurance options.

Common Life Insurance Questions

Do I Need Life Insurance If I Have No Dependents?

There are instances where life insurance can be beneficial even if you have no dependents, the most basic of which would be covering your own funeral expenses. There may be many other reasons too.

At What Life Stage Should You Buy Life Insurance?

The first thing you need to know about life insurance is that the younger and healthier you are, the less expensive it is. So it doesn't necessarily matter what life stage you're in. The sooner you get it, the more affordable it will be.

What Is the Best Life Insurance Policy for Me?

It depends on a number of factors, including:

  1. Why you want life insurance (to build wealth, to protect assets, provide for your family)
  2. What your situation is
  3. What stage of life you are in (do you have kids, are you in school, are you starting a business, buying a home, getting married, etc.)
  4. How old you are

A financial advisor or life insurance representative can also help you explore different life insurance options and should always be consulted for their professional opinions to help you make a choice before choosing the insurance that's best for you.

9 Ways Life Insurance Works

Protects Your Family

Life insurance should be purchased if you are considering starting a family. Your rates will be cheaper now than when you get older and your future children will be depending on your income.

If you have a family that depends on you already, you need life insurance. This does not include only the spouse or partner working outside the home. Life insurance also needs to be considered for the person working in the home. The costs of replacing someone to do domestic chores, home budgeting, and child care can cause significant financial problems for the surviving family.

Covers Your Own Funeral Costs

The reason a single adult would typically need life insurance would be to pay for their own funeral costs or if they help support an elderly parent or another person they may care for financially.

You may also consider purchasing life insurance while you are young so that by the time you need it, you do not have to pay more due to your age. The older you get, the more expensive life insurance becomes, and you risk being refused if there are problems with the life insurance medical exam.

Otherwise, if one has other sources of money for a funeral and has no other persons that depend on their income then life insurance would not be a necessity.

Covers Your Home and Other Debts

If you plan on buying a home with a mortgage, you will be asked if you want to purchase mortgage insurance. Buying a life insurance policy that would cover your mortgage debt would protect the interest and avoid you having to buy extra mortgage insurance when you buy your first home.

Life insurance can be a way of securing that your debts are paid off if you die. If you die with debts and no way for your estate to pay them, your assets and everything you worked for may be lost and will not get passed on to someone you care about. Instead, your estate may be left with debt, which could be passed to your heirs.

Protects Your Partner

If you're in a committed relationship, you should decide if you want life insurance. If both persons are bringing in an income that they feel comfortable living on alone if their partner should pass away, then life insurance would not be necessary except if they wanted to cover their funeral costs.

But, maybe in some instances one working partner contributes more to the income or would want to leave their significant other in a better financial position, then as long as purchasing a life insurance policy would not be a financial burden, it could be an option.

For a low-cost life insurance option look into term life insurance or consider first-to-die life insurance policies where you pay for only one policy and the death benefit goes to the first to die.

You Can Get It Through Work, But Still Need Another Policy

If you have life insurance through work, you should still buy your own life insurance policy. The reason you should never only rely on life insurance at work is that you could lose your job, or decide to change jobs and once you do that, you lose that life insurance policy. It is not strategically sound to leave your life insurance at the hands of an employer. The older you get the more expensive your life insurance becomes. You are better off buying a small backup policy to make sure that you always have some life insurance, even if you lose your job.

Protect Your Business

If you have a business partner or own a business and there are people relying on you, you can consider purchasing a separate life insurance policy for the purpose of your business obligations. 

Secure a Death Benefit for Yourself 

Most people don't think of this as a strategy, buy it has been used and can be a smart thing to do. Life insurance on your parents secures a death benefit for you if you put yourself as the beneficiary of the policy you take out on them. If you are paying their premiums you will want to make sure you make yourself an irrevocable beneficiary to secure your investment. This way when your parents die, you secure the amount of the life insurance policy. If you do this while your parents are young enough, it may be a financially sound investment.

You may also want to protect your own financial stability by looking at buying long-term care for them as well or suggesting they look into it. Often when parents fall ill as they get older the financial burden on their children is enormous. These two options may provide financial protection that you might not have otherwise thought of.

Life Insurance on Children

Most people would suggest that children do not need life insurance because they have no dependents and in the event of their death, although it would be devastating, life insurance would not be beneficial.

However, there are three things to consider if you wanted to take out a life insurance policy on your children:

  1. If you worry about your children eventually getting an illness: Some families have concerns about their children's long-term health due to hereditary risks. If parents fear that eventually, this may make them uninsurable later in life, then they could consider buying their children life insurance so they don't worry about failing medical exams later when they need life insurance for their own families. Some people look at critical illness insurance for children as well.
  2. Some people purchase life insurance for children as they reach early adulthood to help them get a head start on life: A permanent life insurance policy may be a way to build savings for them and give them an opportunity to have a life insurance policy that pays for itself by the time they have a family of their own, or if they want to use the cash portion to borrow against for a major purchase. Life insurance for children may be purchased as a gift to them.
  3. If you would want to receive some sort of death benefit to help you deal with the death of a child and cover funeral expenses if something were to happen to them: The loss of a child is devastating and although children do not provide financial support, they play an important role in the family and their loss can have effects on many levels. The loss may make it very difficult for you to work, and you may suffer financial losses, require psychological help, or require help with surviving children as a result of their passing. 

Children, for the most part, do not need life insurance, but if it is part of a strategy, life insurance for children may be something you consider for the above reasons. Always weigh the option of the above reasons with the other possibilities of savings or insurance you could consider for your kids.

Life Insurance in Retirement or Later in Life

As long as you do not have people depending on your income for support, purchasing a new life insurance policy at this stage in life may not be necessary, unless you do not have any other means to pay for your funeral expenses or decide you want to leave money as a legacy. However, at this stage in life, costs would be high and you would have to pass a medical exam in many circumstances.

One useful thing about life insurance if you are older, is the tax savings element if you want to preserve the value of your estate. You should speak with an estate attorney or financial planner to understand if buying life insurance in your later years may provide tax benefits. Purchasing a life insurance policy at this age can be very expensive. You may want to consider converting an existing policy into the type of policy that best works for your current situation instead.

Life Insurance to Protect and Build Wealth

When you buy life insurance you are looking to protect the lifestyle of your family or dependents if you should die. If this is your primary goal then low-cost life insurance may be a good starting point for you. 

You might also look at it as a way to build your or your family's wealth either through potential tax advantages or if you want to leave money as a legacy, like in the case of survivorship life insurance.

You may also buy life insurance as a way to secure your own financial stability, in the case of whole life insurance, or universal life insurance policies that also offer cash values and investments. These types of policies, along with survivorship life insurance policies also offer the potential of borrowing money from your life insurance policy.

Article Sources

  1. The Guardian Life Insurance Company of America. "Why You're Not Too Young for Life Insurance." Accessed May 14, 2020.

  2. Nationwide. "Mortgage Protection Insurance: Use Term Life Insurance to Pay Off a Mortgage." Accessed Sept. 17, 2020.

  3. Federal Trade Commission. "Debts and Deceased Relatives." Accessed Sept. 17, 2020.

  4. Farmers Insurance. "Life Insurance for Small Business." Accessed Sept. 17, 2020.

  5. Mass Mutual. "Buying Life Insurance for Your Parents." Accessed Sept. 17, 2020.

  6. Mutual of Omaha. "Our Solutions for Children's Whole Life Insurance." Accessed Sept. 17, 2020.

  7. Prudential. "How Can Life Insurance Help Manage Taxes in Retirement?" Accessed Sept. 17, 2020.

  8. Allstate. "Life Insurance and Retirement." Accessed Sept. 17, 2020.