Is life insurance only for families?


Jackie Lam

Jackie Lam

Blog author Jackie Lam

Jackie Lam is a money writer and educator. She helps artists and freelancers get creative with their money at Hey Freelancer.

Published August 4, 2017 | 4 min read

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Featured Image Is life insurance only for families?

As a single woman in her 30s, you could say I’m not in step with the traditional markers of “adulting:” getting married—or coupled, for that matter—having kids, buying a home, and so on. As life insurance is primarily geared toward those who have families and mortgages, are there any instances when a single person should consider purchasing a life insurance policy?

“Life insurance is necessary only if someone who is financially impacted by your death,” says Forrest Baumhover, a CFP®, EA with Westchase Financial Planning. “And while most single people don’t need life insurance, that’s not the case for everyone.”

Here are some reasons why a single person might want to look into a life insurance policy:

##If people are dependent on you My good friend Dave likes to say that “just friends” is insulting because it implies that being friends is secondary to, say, being romantic partners.

While you may not have a spouse or kids, there may be other folks whom you’ve forged close bonds with—and may rely on you financially. This could be an aging parent, sibling, nieces, nephews, or a good friend.

In these cases, it helps to look toward the future. “Just because someone isn’t dependent on that person now doesn’t mean that it can’t happen down the line,” says Baumhover. For example, your mom could get really sick in a few years, or your brother could get into an accident. While these are sobering thoughts, it’s better to prepare for these hypothetical scenarios.

##...And let’s not forget pets If you have pets, life insurance could ensure your feline or pooch is taken care in case of the unexpected. While pets aren’t allowed to inherit property, cash, or other assets for obvious reasons (can you imagine your pup livin’ large from a pile of cash?), through a pet trust you can assign a guardian to care for your furbaby if you pass before they do.

##It could pay off debt Could is the key word here. “Life insurance could help pay off the insured’s credit card debt or loans,” says Baumhover. However, in many cases, credit card debt or student loans are discharged at death.

Here’s what happens to different types of debt when you pass, and how life insurance could help:

Student loans. Once you die, your federal student loan debt is automatically canceled and the government discharges them. But private student loans are a different matter. If the loans were only in your name, they might be discharged at your death.

If you had a co-signer on your loans (let’s say a parent or sibling), they’ll be responsible for making the remaining payments. If that’s the case, life insurance could help pay off your student loans if you pass.

Credit cards. After you pass, your estate will pay for any credit card debt in your life. Once you run out of assets, then that’s pretty much all creditors will get. However, if there’s a joint account holder on a credit card, they’ll shoulder the burden of paying off your outstanding credit card debt. Note that authorized users aren’t responsible for the primary account holder’s credit card debt, just a joint account holder.

Another thing to keep in mind: your beneficiaries won’t see any money from your estate until after these outstanding debts are paid for. So while you have assets you want to pass to your beneficiaries, having life insurance could make sure your beneficiaries receive a larger amount than if you didn’t have a policy in place.

Mortgage. Let’s say you bought a house all on your own. No co-signer or co-borrower. If that’s the case, then whomever you leave the house to may need to take over your mortgage. Your existing assets could help pay for the mortgage, but let’s not forget it could cut into how much your beneficiaries receive. Another option is mortgage life insurance, in which case the mortgage lender would be paid whatever you owed on the house, but this is less ideal because the coverage is tied to your remaining mortgage and isn’t as flexible as traditional term life insurance.

Car loans. Outstanding payments on your car loan can be paid off with assets from your estate. However, if the money runs out before the car is paid off, the car could be repossessed. Whoever inherits your set of wheels can also make payments. Life insurance could potentially help pay off your ride.

As someone who is debt-free, doesn’t own any pets nor have anyone who depends on me financially, it doesn’t seem like life insurance is a top priority for me at the moment. But there are benefits to applying early. Life insurance premiums increase as you get older, and buying now locks in your rates for the life of the policy. Getting a policy now means I’d save a lot of money in the long run if and when I do decide to get life insurance – and even if I never get married or have kids, it’s clear there are a lot of other reasons to have it.