Who Needs Life Insurance?

Woman looking in distance thinking about insurance options
Who should get life insurance? There are different strategies you can use at all stages in life, here's how to figure out if life insurance makes sense for you. John Wildgoose / Getty Images

Your Life Insurance Strategy - How to Know if You Need Life Insurance

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 interesting options for building wealth or tax free investments. 

So who needs life insurance, and when should you buy it?

Is life insurance only for people who have a family to support? We'll go through these questions and common scenarios of when life insurance is a good idea to buy based on 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.

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 however. Here are some guidelines to help you decide if life insurance is the right choice for you:

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. This being said, there are various types of life insurance as well. Depending on:

  • why you want the life insurance
  • what your situation is
  • the point in your life where you need to buy it

or consider it financially responsible to buy life insurance either to find life insurance at a cheap price or to protect your family and future, situations will be different for everyone.

Life Insurance as a Strategy 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 them money as a legacy.

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.

Here is a list of people who might need life insurance at different life stages, and why you would want to buy life insurance at these stages. This list will help you consider various reasons to purchase life insurance and help you figure out if it is time for you to look into buying life insurance or not.

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.

Beginning Families

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. Learn more at Parents: How Much Life Insurance Do You Need?

Established Families

If you have a family that depends on you, 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 childcare can cause significant financial problems for the surviving family. Learn more at Parents: How Much Life Insurance Do You Need?

Young Single Adults

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 other 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.

Homeowners and People With Mortgages or 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.

Non-Child Working Couples

Both persons in this situation would need to decide if they would 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 spouse 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. 

People Who Have Life Insurance Through Their Work

If you have life insurance through your work, you should still buy your own life insurance policy. The reason you should never only rely on life insurance at work is because 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 back up policy to make sure that you always have some life insurance, even if you lose your job.

Business Partners and Business Owners

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. 

Buying Life Insurance on Your Parents 

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 to you if you put yourself as the beneficiary on 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 for 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.

There are a few strategic reasons you might want to buy life insurance for 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.
  2. 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. This is certainly not common thinking, but may be a reason for a parent to consider life insurance for children.
  3. 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 in these cases.

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 you could consider for your kids. 

Elderly

As long as you do not have people depending on your income for support, life insurance at this stage in life would not be necessary, unless again, you do not have any other means to pay for your funeral expenses. But, be aware that purchasing a life insurance policy at this age can be very expensive.

Before doing so, first talk to a financial advisor or accountant about looking into other saving options to pay for your funeral costs before considering life insurance.