Do I need life insurance?

Life is complicated — full of a million twists you never saw coming, and there can just as many reasons to buy a life insurance policy. But not everyone needs it. We’ll help you figure out if you actually need life insurance — and when to get it.

In this article, we’ll cover:

• Who needs life insurance
• At what age to buy life insurance
• Who doesn’t need life insurance
• Is life insurance required by law in a divorce?

Who needs life insurance?

A wide variety of scenarios warrant buying life insurance, but the simplest rule of thumb for determining who needs life insurance most is: Does anyone rely on your income for their financial wellbeing? This could be a child, spouse, aging parent or even the cosigner of a student loan who would get stuck with the debt if you weren’t around to pay it off.

If the answer is yes, you probably need life insurance.

Life insurance replaces the financial support you give to others in the event you’re no longer here to provide. The most common scenarios where people feel they need life insurance are:

Parents with young kids

Your kids will depend on you for years, and you’ll probably want to build savings for college tuition and other milestones in their future, and even just everyday costs you don’t want to saddle your spouse with. Unless you’ve already saved all they’ll need, you’ll want to consider a life insurance policy to fill the gap if you’re not here.

Couples

If you have a mortgage that requires both partners’ salaries for the payments, or if one partner earns the lion’s share of the income to support your lifestyle, a life insurance policy makes sure you’re covered no matter what.

Students

Federal student loans are forgiven if the borrower dies. Private student loans, however, don’t offer the same protection and usually transfer the debt to whoever co-signed the loan — usually the parents. Parents in this position may have difficulty paying off the loans; students with student loans big enough to be a burden can consider a life insurance policy to protect loan co-signers from getting stuck with the debt. Plus, as we’ll discuss later, buying a life insurance policy while you’re young locks in lower premiums compared to policies bought later in life.

There are other scenarios in which you might not necessarily need life insurance, but may still benefit from it:

Business owners

Business owners may want to name business partners as beneficiaries in addition to their families, especially if the business could cease to exist without them. Alternately, the death benefit can be used for a buy-sell agreement, providing funds for the other business partners to buy out the remaining shares from the deceased’s family.

The ultra-wealthy

If you’re leaving enough inheritance to trigger estate taxes, you might want to use a cash-value life insurance policy (like whole life) to pass funds to your heirs to pay the tax bill. If you’re in this position you may not need life insurance and you should consult a financial advisor about estate planning. (This is further complicated by 2018 tax reform, which increases the exemption on estate taxes to from $11.2 million or $22 million for a married couple through 2025.)

At what age should you buy life insurance?

You’ll notice something about the life insurance needs of parents, students, and couples: In these cases, your coverage needs won’t stay the same forever — in fact, at some point they’ll disappear. The kids will grow up and move out; you and your partner will finally pay off the mortgage; you’ll close out that student loan. At that point you might not need any coverage.

For most people in this boat, a term life insurance policy is the right choice. Term insurance lasts for a set period of time (the coverage term) and then expires. While it may seem like you’d want insurance to last your whole life, most people are better off buying an affordable term policy and investing their savings separately rather than buying an expensive whole life policy. (See our full term vs. whole life insurance page for more.)

But even if you know you’re buying term, what is the right age to buy? Do I need life insurance at 25, 35 or 45? The simple answer is it depends on what’s going on in your life. But there are few things to keep in mind:

• Buying life insurance gets more expensive with age. Each year you wait, you can expect your life insurance premiums to go up 8-10%. Once it’s in place your monthly rate won’t change, but if you buy a 20-year policy when you’re 45 you can expect to pay more than double what you’d pay at 35 for the same death benefit amount.

• Holding life insurance too long is expensive While buying life insurance at 25 is certainly cheaper than getting it at 45, you may not need coverage as long if you buy it later, which could even out the cost.

You might wonder if it’s cheaper to pay $30 per month for 20 years, or $60 per month for 10 years? They’re actually equal.

By buying life insurance when you’re young you can make your insurance last longer for the money. However, paying life insurance premiums before you really need to can add unnecessary costs. Our recommendation is to buy it as soon as you have an insurable need — as soon as someone starts depending on your income — and set the term for as long as you estimate they’ll rely on you. This way you lock in the cheapest rate possible while also not spending before you have to.

• For seniors who are concerned about final expenses like burial costs and (small) outstanding debts, final expense life insurance or guaranteed life insurance can be a solution.

Who doesn’t need life insurance

Not everyone needs life insurance, even if they play an important role in their families’ lives. Here are a couple examples of people who usually don’t need term life insurance:

Stay-at-home parents Since term life insurance substitutes for the earning power of the policyholder, stay-at-home parents usually don’t need the same kind of life insurance coverage as working parents. That’s not to say that a stay-at-home spouse doesn’t contribute to the family — and in fact it may make sense to get a small policy to cover the costs of daycare, etc that would be introduced if the stay-at-home parent were no longer here. But this policy would be smaller and shorter in duration than a typical term policy — until, say, a child is old enough to start school. Some insurance companies may not even be willing to sell you a bigger policy in this scenario.

Retirees Ideally, by the time you reach retirement age your need for life insurance is behind you: The kids are making their own way, and you’ve paid off your own debts so there’s no danger of saddling anyone else with them once you’re gone. Once you’re financially free and clear, there’s no real need for life insurance. You may even be able to self-insure that this point with savings. If you’re thinking of leaving an inheritance, you’re probably better off building up investments outside of a life insurance policy.

Children While many life insurance companies offer a rider to cover your kids and some insurance agents may even try to sell you one, it’s not typically recommend it. Children aren’t earning and supporting the family, so they probably don’t need life insurance.

Remember, this isn’t to say that no one in the above scenarios needs life insurance. Individual circumstances should be taken into account. But it’s important to think twice about whether or not it’s truly necessary.

Is life insurance required by law in a divorce?

Life insurance, unlike car insurance and health insurance, is usually not required by law in most circumstances. However some states may require separating spouses to buy life insurance naming their exes as beneficiaries on the death benefit to ensure their child(ren) are provided for no matter the outcome. Rules around court-ordered life insurance change from state to state, so make sure to consult a legal professional if you find yourself in this situation.

Calculating your needs

Once you’ve determined that you need life insurance, the next step is to calculate exactly how much coverage you need. Before you go directly to a life insurance company, you can speak to a licensed agent, financial planner or use a digital service like Policygenius to figure out how life insurance fits your financial needs.