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Planning for the future can be intimidating, but a little preparation now could make a huge difference for yourself and your loved ones if the unthinkable happens. But is life insurance the right way to prepare, or should you choose a different financial vehicle? Bankrate simplifies everything you need to know about life insurance and how you can decide if it’s right for you.

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Do I need life insurance?

You may be wondering, “Do I need life insurance?” That answer will be different for everyone. Whether you need life insurance depends on your financial goals. If any of the following scenarios fit your situation, you may want to look into it.

  • 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: The average cost of raising a child from birth to age 17 is $233,610, according to the USDA. 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 protect these people.
  • 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 an adult special needs dependent who you care for financially: Some parents care for their special needs child financially for the rest of their lives. If this describes you, a life insurance policy could make sure your child has everything they need when you pass.

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. 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.

2. Singles without children

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 a special needs sibling, 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.

3. Small-business owners

Entrepreneurs tend to think of themselves as rough and rugged — self-made types. But now that you’ve gotten to where you are, there’s a team depending on you. That’s one reason you shouldn’t dismiss the idea of life insurance. Also, 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. 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.

5. Stay-at-home parents

With surging inflation, two-earner families have become more the rule than the exception. But there are still cases in which one parent works while the other looks after the children.

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 parent’s value. Childcare, cooking and food costs, transportation and cleaning can add up. For this reason, the family can usually benefit from the stay-at-home parent holding a life insurance policy.

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

Everyone is different when it comes to deciding whether or not they need life insurance. In general, life insurance can be beneficial for small business owners, parents with jobs, stay at home parents, retirees, single people without children and empty nesters. A licensed insurance agent can help you decide how much life insurance you need, but in general, you may want to calculate the amount of lost income you’d need to replace if you passed away. For instance, some policyholders multiply their salary or income by ten or twenty years, depending on the amount of life insurance they can afford.

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