Q

Why is life insurance important?

A

Life insurance supports your family’s current and future financial needs by paying out a lump-sum cash benefit when you die.

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

If anyone depends on you for financial support, you should own a life insurance policy for their protection. A policy will provide for the people you love if the worst should happen and you pass away.

Every person’s life insurance needs are different. Here’s why life insurance should be part of your financial plan, who can benefit from your policy, and how to find the right protection for your family.

Key Takeaways

  • A life insurance policy pays a tax-free benefit to your loved ones if you die while your policy is active.

  • It’s important to have life insurance if you have dependents or shared debts.

  • Insurance proceeds can be used for virtually anything, including childcare and medical expenses.

Why is it important to have life insurance?

A life insurance policy provides a tax-free, lump-sum cash payment called the death benefit to your loved ones when you die, which can be put toward shared debts and living expenses. It ensures that when you pass away, your family can still meet their needs.

There are no restrictions on spending the death benefit, so your beneficiaries can use the payout for short- or long-term obligations. Common uses include:

  • Child or dependent care: The estimated cost of raising a child through age 17 is nearly $233,610, [1] and nursing home care can be as much as $105,850 per year. [2]

  • End-of-life medical costs: Out-of-pocket expenses can be up to $9,000 in the final year of life. [3]

  • Everyday expenses: Including bills, food, house cleaning, and other everyday needs.

  • Funeral expenses: Burial or cremation services cost $7,000 on average.

  • Future education expenses: Including private school or college tuition, which averages $16,040 per year for private high school [4] and $37,650 per year for a private, four-year university. [5]

  • Investing: Funds can go toward your partner’s retirement, an inheritance for your children, or a tax-advantaged education account, like a 529 plan.

  • Outstanding debts: Including a mortgage, business loans, or student loans.

→ Learn more about how life insurance works

Who does your life insurance policy protect?

Your policy proceeds can support anyone whose finances will be impacted if you pass away and no longer provide an income. That includes your:

  • Spouse

  • Children

  • Aging parents

  • Other family members

  • Business partner

Even if someone doesn’t rely on you to fulfill their everyday needs, the loss of your income could affect them in other ways. Parents who cosigned private college loans would become responsible for the unpaid amount, for example.   

Once your beneficiaries file a claim, your insurer pays out due to any cause of death. There are rare exceptions, like if you lie on your application or die while carrying out a crime.

→ Learn more about who needs life insurance and why

Ready to shop for life insurance?

Start calculator

Which type of life insurance should you buy?

When it comes time to buy a policy, most people choose between term (affordable and lasts for a set period of time) and whole life insurance (lasts your entire life). 

Term life insurance is the best choice for most people because premiums are five to 15 times cheaper and you’ll likely have few financial obligations by the time your term policy expires. Both term and whole life insurance allow you to customize your policy with riders.

→ Learn about the different types of life insurance

How much does life insurance cost?

The cost of a life insurance policy depends on the type of policy you buy, the coverage period and coverage amount, and personal factors like your medical history and age.

Based on policies offered by Policygenius in December 2021, a 35-year-old non-smoker without complex health conditions would pay around $30 per month for a $500,000, 20-year term life insurance policy or $430 to $520 per month for a whole life insurance policy with lifetime coverage.

→ Find out how much life insurance you need

Ready to shop for life insurance?

Start calculator

If you share financial responsibilities with a partner or help care for your loved ones, life insurance is a simple and affordable way to secure your family’s financial future. Speak to an independent insurance agent to find the right policy for your needs. 

Frequently asked questions

Is it necessary to have life insurance coverage?

If anyone relies on you financially, you should have life insurance to cover shared debts and financial needs.

Why is life insurance an important part of financial planning?

Life insurance is a safety net for your long-term financial plans. If you pass away while you still have financial obligations, a policy protects your loved ones from the loss of your income.

When is it less important to have a life insurance policy?

If you have no debts or dependents, buying a policy is less urgent. But, buying when you’re young can save you money and prepare you for future life events.