Do I Need Life Insurance?
The short answer is yes. It would be a difficult task to find someone who does not need some type of life insurance. A better question to ask would be "what type of life insurance makes the most sense for my situation?"
Consumers tend to have a narrow scope of how life insurance works and when they might need it. Today we're going to spend some time highlighting some scenarios when it would a good idea to have life insurance. Some of the scenarios will be familiar while some others you may not have considered. Let's dive in.
When should I have life insurance?
- When someone would have to take on your debt. All of your debts do not magically disappear upon your death. If you have an outstanding loan with a co signer, joint owners or account holders, or spouses in community property states (like Arizona or California), they could all possibly be in line to pay off your debts.
- Your family relies on your income. This is the more common situations where someone would benefit from a life insurance policy. If you are building a life and have a family, losing your income would be financially devastating. A life insurance policy could replace income for a number of years and even pay off large debts like a mortgage.
- If your funeral costs could become a burden. The average funeral cost in the US is around $8,000. Depending on your preferences, the cost could be much higher. Life insurance could be a way for you to take that financial burden off your family or children.
- You own a business. If you operate your own business you have partners and/or employees that rely on you. A life insurance policy could help pay salaries, severances, or even just basic overhead costs while your partners make plans to keep the business going.
- If you are a stay at home parent. Even if you don't draw a regular income the services you provide around the home would have to be replaced if you did not perform them. The expenses of cleaning, cooking (eating out more often), and child care services would all have to be accounted for.
- If you have heirs that would owe estate taxes. This example won't apply for most people but if your estate is large enough, your heirs could be subject to an estate tax once you die. This would only apply if you leave behind assets in excess of $11.7 million.
- If you have student loans. All student loans are not automatically forgiven once you die. For example, if the loan is from a private company and someone, like a parent, is a co-signer, the could be held responsible for the loan.
Is there anyone who doesn't need life insurance?
I suppose if you are young and no one in your life relies on you financially you may be in a position to invest in other financial vehicles like stocks or real estate. However it is important to note that if you are young and healthy you are going to get a great rate on your life insurance policy. We tend to run into health problems as we age so it could be a smart move to lock in that level premium price at young age.
Aside from that there are coverage options like Indexed Universal Life Insurance, that provide a death benefit as well as a cash value account. The younger you are, the longer compound interest can go to work for you. Who wouldn't want to retire a little early with a tax free income stream? But we'll save that for the next post.
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