Who needs life insurance?

Navigating the path to financial security often involves considering various strategies and tools. Among them, life insurance emerges as a pivotal financial planning tool for many. At its core, life insurance serves to safeguard the dreams and aspirations you have carefully nurtured, from settling debts to securing a comfortable retirement for your beneficiaries. It’s a commitment to the well-being of your loved ones, ensuring they remain financially secure in your absence.

Understanding who needs life insurance is a crucial first step. A recent study by LIMRA and Life Happens shows that 51 percent of Americans own at least one life insurance policy, yet 22 percent of policyholders believe they do not have enough coverage. Moreover, 30 percent of non-owners feel they need life insurance, highlighting a significant gap in protection. This insight emphasizes the importance of evaluating life insurance needs comprehensively.

Our Bankrate insurance editorial team is here to help demystify life insurance, offering insights on how it might fit into your financial landscape and outlining circumstances where it might prove most beneficial.

Do I need life insurance?

Whether you need life insurance varies for each individual, often hinging on unique financial goals and personal circumstances. If you identify with any of the following scenarios exploring life insurance could be a wise consideration for your financial planning.

• If your partner lives off your income: Whether or not you have children, your spouse could be left without income if they live off your salary. You may want to evaluate their expenses if you passed and determine whether they could start working or not.
• If you have young children: With higher inflation rates, the average cost of raising a child from birth to age 17 has risen to $310,605, according to a Brookings study. If you have children who need food, shelter, clothing and education after you pass, you may want to consider purchasing life insurance.
• If you contribute to your family’s mortgage or college expenses: If you and your spouse have a mortgage or are paying for large expenses such as your children’s college, you may want to take out a life insurance policy that can shelter your loved ones financially in case you pass away.
• If your family would have a difficult time paying for your funeral: Surprising to most people, the median cost of a funeral in the United States is $7,848. Many families don’t have this kind of money lying around. If you think your family might have a hard time paying funeral expenses when you pass away, you may want to purchase a life insurance policy so that your loved ones can focus on grieving rather than finances when the time comes.
• If you would leave your heirs debt: If you have debts, they could pass to your spouse or any joint account holders when you die. Taking out a life insurance policy could financially protect your loved ones from becoming responsible for paying your remaining debts off.
• If you have business partners who might fail without you: If you have a business with employees that count on their paychecks or business partners who would fail without you, you may want to factor them into your life insurance policy.
• If you have a special needs dependent who you care for financially: Some parents provide financial support for their child with special needs or disabilities throughout their lives. If this describes your situation, a life insurance policy could help ensure your child has the necessary financial resources when you pass away.

What type of life insurance do I need?

Understanding whether life insurance is a suitable tool for your financial toolkit is just the beginning. Once you’ve acknowledged the potential benefits, the next vital step is to discern the type of life insurance that aligns with your specific circumstances. This decision can be influenced by a multitude of factors, including your current financial obligations, future goals and the needs of those who depend on you.

For those supporting a family, especially with young children or a partner reliant on your income, a term life insurance policy might be a practical choice. It’s typically more affordable and can be tailored to cover the years you’re most financially vulnerable. Alternatively, if long-term financial planning, such as estate planning or charitable giving, is part of your strategy, permanent life insurance, like whole or universal life, could be more appropriate. These policies are typically more expensive but offer lifelong coverage and can accumulate cash value over time.

While considering life insurance, remember that the choice isn’t just about having insurance but about selecting the type that will offer you the most peace of mind for your situation. Consulting with a financial advisor can provide personalized guidance to help you make the most informed decision.

Who needs life insurance the most?

If you’re wondering who needs life insurance the most, the following list may help. Although the list is not exhaustive, it describes personal scenarios that could potentially benefit from life insurance. If one of these categories describes you, you may want to talk with an insurance agent about purchasing a life insurance policy.

1. Parents of young children

As a parent, the well-being and future of your children are always at the forefront of your mind. Life insurance can provide a crucial safety net, ensuring that your children’s needs are met even if you’re no longer there to support them. Think about the costs of daily living such as food, clothing and education. The payout from a life insurance policy can help cover these expenses, giving your family financial stability during a challenging time.

Additionally, life insurance can fund your children’s future educational pursuits, allowing them to attend college without the burden of student loans. By securing a life insurance policy, you’re providing peace of mind, knowing that your children will have the resources they need to grow and thrive, no matter what happens.

2. Stay-at-home parents

With surging inflation, multi-earner families have become more the rule than the exception. But there are still cases in which one parent works while the other cares for the children or household.

Couples in this situation often purchase a life insurance policy based on the working spouse’s income but forget to account for the stay-at-home spouse’s value. Childcare, cooking and food costs, transportation and cleaning can add up. For this reason, even single-income families can usually benefit from a life insurance policy for the stay-at-home spouse.

3. Small business owners

Entrepreneurs may think of themselves as self-made types. However, after finding success in your business ventures, you likely now have a team depending on you, which is one reason not to dismiss the idea of life insurance. You’ll want to consider how your loss would impact your partners and employees. Additionally, if you buy a permanent life insurance policy, you can borrow against the cash value for business expenses, such as a retirement fund for employees.

A life insurance policy can strengthen a business partnership by covering key persons or backing a buy-sell agreement. You could join your business partners in purchasing a life insurance policy that would pay out if one of you (or a key employee) dies. Those funds could then be used to buy out the deceased owner’s share of the business at a prearranged price or cover the expense of losing a valuable employee.

4. Couples without children

While it may seem like life insurance is more relevant for families with children, couples without children also have compelling reasons to consider it. If one partner relies on the other for financial support, a life insurance policy can ensure that the surviving partner is not left in a difficult financial situation. This support can help cover living expenses, pay off shared debts or maintain their current lifestyle.

Life insurance also offers the opportunity to leave a lasting legacy. You can use the payout to fund charitable causes you care about or to support nieces, nephews or other loved ones. Moreover, life insurance can be a strategic financial tool, providing a way to cover estate taxes or final expenses, ensuring that your partner or other beneficiaries are not burdened with these costs.

5. Caretakers

Without children to consider, singles may be prone to shrug off life insurance. However, you may still have people in your life who depend on you financially. If you care for a parent or sibling with special needs or a disability, you may want to ensure their financial needs are taken care of if you were to pass away. Additionally, a life insurance policy doesn’t always have to support a family member — you could also designate the beneficiary of your life insurance policy as a church or charity that is close to your heart.

6. Empty nesters

If your children have grown up and moved away from home to begin their own lives, it doesn’t necessarily mean you should cancel your life insurance policy. A policy can create a legacy of money you could pass on to heirs such as your kids, grandkids and so on. Whole life insurance, in particular, can be a great final gift to grandchildren since it remains in effect as long as you pay your premiums. With college tuition skyrocketing, leaving life insurance as a way for your children or grandchildren to pay for education expenses could be a wise choice.

Besides your descendants, you may also consider your spouse, who may need income after you are gone. Consider if your spouse might outlive you or what your plans for retirement are. Without your current income, a life insurance policy could help with maintaining the current standard of living you and your spouse have established.

7. Retirees

Retirement often signifies a time to take a step back in life, especially if your house is paid off and both you and your spouse are set with retirement income. However, you may still need life insurance as a way to protect your heirs. A life insurance death benefit could go towards estate taxes and funeral expenses, as well as a monetary gift for children that would be split as you designate.

How much life insurance do you need?

There are several ways to calculate how much life insurance you need, based on the reason you’re buying it, including Bankrate’s life insurance calculator. You may want to tally the costs you’d like to cover when you’re gone, such as funeral services and your debt. Or maybe you’d like to pay for all your grandkids’ college, so you’ll need to estimate how much you think they would need.

If you’re buying life insurance as a replacement for the amount of money you contribute to the people who rely on you or you’re in business with, consider multiplying your salary or income by ten or twenty years, depending on what you can afford. Leaving behind ten years of the income your beneficiaries are accustomed to can make a big difference in their financial picture.

The bottom line

Choosing the right life insurance policy is a pivotal step in safeguarding the financial future of your loved ones. Whether you’re a young parent ensuring your children’s education and living expenses are covered, a small business owner protecting your business partners and employees or a retiree planning to leave a legacy, life insurance can provide the necessary financial support when it’s needed most. By understanding your unique needs and goals, you can select a policy that offers peace of mind and financial security. It’s not just about protecting your assets, it’s about ensuring that your family can maintain their quality of life and meet future financial goals even after you’re gone. If you are still uncertain, consider consulting with a financial advisor to help you decide how much life insurance you need and to help tailor a plan that best fits your circumstances.

Frequently asked questions

• What is the best life insurance company?

  The best life insurance policy will vary for everyone depending on their policy and customer service preferences. One way to narrow down the best life insurance company for you is to talk with an independent insurance agent about what policy type might be right for you. Then, you can start life insurance quotes from the top life insurance companies online.
  

• How much does life insurance cost?

  The cost of life insurance is difficult to determine, as it is heavily dependent on an individual’s health and rating factors. Additionally, life insurance companies typically do not make their rates public. The best way to know how much life insurance may cost for you is to obtain quotes for the policy type you want to see what your price range might be.
  

• Should I get my child a life insurance policy?

  Deciding whether to get a life insurance policy for your child is a personal choice, but there are a few advantages to consider. One very affordable way to offer life insurance protection for your children is by adding a child rider to your own policy. This option is often cost-effective and provides coverage without the need for a separate policy.

  Purchasing life insurance for your child can lock in lower rates and ensure future insurability. It guarantees that your child has sufficient life insurance coverage even if they develop a pre-existing condition, such as diabetes, later in life.

• Can I get life insurance if I have a health issue?

  If you have a health issue, finding life insurance can be more challenging, but it’s certainly possible. The best strategy is to get multiple quotes from various companies, as each insurer evaluates health conditions differently.

  For minor health issues like elevated blood pressure, you can usually secure a policy, though your premium might be higher than for someone with no health concerns. For more severe conditions, such as a history of cancer or stroke, eligibility can vary significantly between insurers.

  Guaranteed issue life insurance is an option for those with serious health issues. While this type of insurance is generally more expensive and offers a lower death benefit, it does not require a medical exam, making it accessible regardless of your health status. Shopping around and comparing quotes will help you find the best possible coverage for your situation.

• What happens if you have no life insurance?

  If you don’t have life insurance, the financial implications for your loved ones could be significant. Without your income, your family may struggle to pay for essential expenses like the mortgage or rent, making it hard to maintain their home. This financial strain could force them to uproot during a time of emotional distress, adding trauma to the already existing pain from losing you. Your family may also need to settle any debts you leave behind, such as personal loans or credit card balances, potentially requiring them to liquidate assets or take on additional burdens.

  Funeral costs, educational expenses for children and long-term financial goals like retirement for your spouse could also become difficult to manage. Essentially, without life insurance, your family’s financial stability and future are left to chance, highlighting the importance of considering life insurance as a protective measure.