If someone has your income or would have financial difficulties as a result of your death, you need life insurance.
Whether or not life insurance is mandatory depends on how your loved ones would fare financially without you.
But life insurance is not limited to couples or parents with incomes to replace.
If you’ve shared debts, a business, or don’t have savings for funeral expenses, you probably need life insurance, too.
Below, we’ll give more information on who needs to buy life insurance and who doesn’t.
WHO REALLY NEEDS LIFE INSURANCE?
Life insurance is a versatile product designed to cover everyone from struggling college students with signed loans to massive successive tax billionaires.
It’s also made to fit all different stages of life, with policies for singles, parents, and retirees, each of whom may need life insurance.
Let’s take a closer look at each of those demographics and more to help you decide whether or not you could benefit from a life insurance policy.
According to a 2017 USDA report, the average cost of caring for a child born in 2015 exceeds $ 233,000, a number that is likely to continue to rise.
Life insurance is crucial in providing basic care to your children, whether married, divorced, or single.
It is especially important for parents with children with special needs, who are likely to face substantial long-term care costs.
A life insurance policy can do everything from ensuring that your children have a roof over their heads to provide them with a college education.
If you are the main breadwinner in your home, you definitely need to buy life insurance.
The loss of a spouse who stays home can also leave a massive financial hole.
Regardless of who makes the most money, consider how your spouse’s ability to maintain their lifestyle would be affected by their death.
If you just said “Yes” or are about to retire, will your partner have a hard time keeping up with your mortgage, shared debts, utility bills, or other expenses without you?
SOLTER @ S
If you’re single, you probably don’t need to worry about life insurance.
However, there are two reasons why you could:
- Debt: If a parent or friend signed a loan or you have other debts that will not die with you, you must buy life insurance.
- Funeral costs: If you don’t have enough money saved to pay for a funeral, you might want to consider a small life insurance policy to cover funeral expenses.
If you have older parents who depend, at least in part, on their income, an affordable term life insurance policy could also help protect them.
PEOPLE WITH SHARED DEBT
Do you have self-signed or student loans, or joint credit cards?
If you are a young student or a retired grandparent, if your debts can be transferred to your loved ones, life insurance is essential.
You can easily tailor a term life insurance policy to fit your loan and credit repayment schedule, ensuring that your loved ones are covered until the debt is paid.
If you own a home, you should seriously consider buying a life insurance policy.
One of the most common reasons people cite to buy life insurance is to ensure that the mortgage is serviced.
Mortgage payments can be stifling for families when a spouse or parent dies.
Life insurance can give you peace of mind knowing that your loved ones can continue to live in your home without having to move or struggle under the weight of the mortgage.
In most cases, life insurance is not taxable, which means that your beneficiaries get every penny of the funds you leave them.
You can not say the same for estates and inheritances considerable.
According to the IRS, if your assets exceed a certain dollar amount, $ 11,580,000 in 2020, your heirs will be subject to an estate tax of up to 40%.
If you fall into this category, life insurance can help your loved ones pay the bill.
Are you worried about what will happen to your business and the people you share it with if you die?
Life insurance can help with:
- Financing a purchase-sale agreement
- Pay outstanding business debts
- Taking care of inheritance taxes
You can even buy key person insurance, a type of policy specifically designed to keep a company afloat if a key player on the team dies.
Traditional life insurance policies are more difficult to qualify once you begin to age.
But as you get older, you tend to have fewer dependents, major cost-sharing, and debt, lessening your need for a substantial life insurance policy.
Like young singles, many older adults could benefit from purchasing a life insurance policy for final expenses to relieve their loved ones of the burden of paying for a funeral.
These small life insurance policies have minimum approval requirements and are designed with older people in mind.
Most financial experts discourage the use of life insurance as their primary investment vehicle.
Why? Permanent life insurance is expensive, especially later in life, and there are more advantageous investment options.
However, if you have maximized contributions in your other retirement accounts and really need coverage, a permanent life insurance policy could be a rewarding option.
There are several permanent life insurance policy options that give you the flexibility to invest with different levels of risk and preferences.
WHO DOES NOT NEED LIFE INSURANCE?
Most people will need life insurance at some point in their life; however, now may not be the best time to buy a policy.
Every situation is different, for the most part, you don’t need life insurance if you can check all three boxes below:
- Without dependents
- No transferable debt
- No final expenses required
Although life insurance is incredibly affordable, there is no point in paying for a policy if you don’t need the protection it provides.
As long as no one is financially affected by his death, you can forgo life insurance for now.
DO CHILDREN NEED LIFE INSURANCE?
There are mixed reviews about children’s life insurance.
For one thing, your children have no one to depend on for their income to survive.
However, advocates of children’s life insurance suggest some benefits, as these life insurance policies can:
- Plan for funeral expenses.
- affordable premiums
- Create savings fund for university expenses
- Maintain your child’s insurability
The above benefits are true and worthwhile in some circumstances, these life insurance policies are not worth the cost of coverage for the average family.
A very cheap alternative would be to use the additional clause of Child Insurance in the policy of a parent.
HOW MUCH LIFE INSURANCE DO YOU NEED?
It depends. If you are a young parent with a new home and three children to enter college, you will need a much larger life insurance policy than a late-spending retiree.
However, a common rule of thumb is to multiply your income by 7-10x to determine a coverage amount, adding significant expenses and debts.
You can adjust that amount based on your assets, age, and stage of life.
Note: Many people wonder if work-life insurance is a good idea. While it might be useful as a supplemental life insurance policy, it will not fully meet all of the above needs.
Here is our guide to choosing how much you need.
WHEN SHOULD YOU BUY LIFE INSURANCE?
The amount you pay for life insurance depends on risk factors related to your health and lifestyle.
Chief among them is age. That’s why it’s important to apply for life insurance as soon as you realize you need a policy.
Young and healthy applicants will have access to the best rates of living, with prices that increase with each passing year.
In addition to cost considerations, you should purchase a life insurance policy as soon as possible (if you need it) due to loved ones.
Every day that passes without a life insurance policy leaves them unprotected, a risk that simply isn’t worth taking.