Updated April 9, 2021|3 min read
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There are many reasons you may need life insurance. If you’re unsure if you need it, the simplest question to ask yourself is: Does anyone in my life benefit from or need my financial support? This could be a child, spouse, aging parent, business partner, or even the cosigner on a student loan who would get stuck with the debt if you weren’t around to pay it off.
If you answered yes, you probably need life insurance.
Life insurance offers your family financial protection when you’re gone
Buying life insurance when you’re young saves you money on premiums in the long run
Life insurance can cover the cost of your funeral, your family’s everyday expenses, and any debts you leave behind
Should something happen to you, life insurance ensures your loved ones are protected financially. Having a policy is important for anyone with dependents, and has become even more pivotal during the current outbreak of COVID-19. According to a study conducted by LIMRA, the percentage of Americans who felt a "heightened need for life insurance increased from 49% to 58%" from March 2020 to July 2020.
Whether or not you need life insurance depends on your individual circumstances. Take a look at the table below to determine if you are someone who needs life insurance.
|IF YOU ARE A…||YOU MAY NEED LIFE INSURANCE BECAUSE:|
|Parent||Life insurance helps with the everyday expenses of raising a child, along with saving for college tuition and other milestones in your child’s future.|
|Spouse||Life insurance guarantees you’re covered for any shared expenses or loans.|
|Student||While federal student loans are forgiven if the borrower dies, private student loans transfer the debt to the cosigners. Having life insurance keeps your loved ones from being stuck with debt.|
|Entrepreneur||If you are a business owner, you can name a business partner as the life insurance beneficiary. The death benefit can be used to keep the business running or to buy out any remaining shares of the business.|
|Caretaker||Whether you care for an adult child with disabilities, an aging parent, or someone else, life insurance can provide financial coverage so your loved ones can find new aid if something happens to you.|
Life insurance is meant to be an income replacement when you pass away. When you die, your beneficiaries file a claim to receive your policy proceeds. Policygenius’ experts recommend you multiply your income by 10-15 times as a starting point. However, your coverage should encompass all of your anticipated financial obligations, including debts, children, or aging parents.
Ready to shop for life insurance?
Patrick Hanzel, Policygenius’ Advanced Planning Specialist and Certified Financial Planner points out, “If someone knows or expects they will have an insurable need soon, we recommend locking in coverage while you are younger and (usually) healthier. We recommend owning coverage as you would five years from today."
|AGE||GENDER||$500,000 COVERAGE AMOUNT|
We recommend owning coverage as you would five years from today.
If you are young and have no dependents, ask yourself:
Can your loved ones afford the cost of unexpected funeral or medical expenses if you die? The average funeral costs $8,000-10,000. Your beneficiaries can use your death benefit to cover those expenses. If you become sick or injured and need medical care, the benefit can be put toward any costs that health insurance does not cover.
Did someone cosign a loan for your home or car? Just like a student loan, they’ll be responsible for the remaining balance if you die. A life insurance death benefit can cover that outstanding debt for your cosigner as well.
Do you plan to have children in the near future? Many people wait until their children are born to purchase life insurance. But if you know you want kids down the line, you can lock in a cheaper premium by buying a life insurance policy now.
Even if you won’t need the full coverage amount to cover final expenses and debt, the remaining balance could provide financial security to your loved ones or even be donated to a charity of your choosing.
Still not sure if you need life insurance? Take a look at this flowchart to see where you fall.
Not everyone needs life insurance, even if they play an important role in their families’ lives. Here are a couple of examples of people who usually don’t need term insurance:
Retirees - Ideally, by the time you reach retirement age your children are financially independent and you’ve paid off your major debts. At this stage of life, there’s no real need for life insurance.
Children - While many life insurance companies offer policies specifically designed to cover your kids, it’s not typically recommended because children don’t earn wages or support a family.
While life insurance isn’t typically necessary for retirees or children, some individual circumstances may suggest that life insurance would be beneficial. For example, if you have a large estate, you may want a policy to help decrease the burden of estate taxes.
Bottom line: If you have outstanding debts, dependents, or aren’t nearing retirement age, it’s better to get life insurance sooner rather than later.
Your life insurance death benefit should be at least 10-15 times your income and should factor in financial obligations like childcare or college tuition, end-of-life expenses, and any debts you have.
You don’t need to buy life insurance for your children, since you don’t rely on them financially. If you’re retired with no debt and no dependents, you may also be able to forgo getting a policy.
You should get life insurance as soon as you have — or are planning to have — dependents or shared debts. Life insurance is more affordable when you’re young and healthy, and prices increase 4.5-9% each year you don’t buy coverage. The younger you are when you buy a policy, the less you’ll pay for coverage over several decades.