Whether it’s paying off debt, planning for retirement, or building wealth, you likely have financial goals to help you prepare for the future. Achieving these goals requires proper planning and identifying ways to help protect your nest egg. Life insurance is one means by which you can ensure your financial obligations are covered and that your loved ones are taken care of should the worst happen. You may be wondering if life insurance fits your needs or who needs life insurance. Bankrate’s insurance editorial team has taken time to simplify what you need to know to determine whether life insurance is right for you and who it may be most suited for.

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Key takeaways
  • Certain life circumstances, such as being a small business owner, retiree or single-income household may make life insurance more beneficial.
  • The amount of life insurance you need will depend on the reason for purchasing it.
  • Multiplying your income by several years is one way to determine the amount you’d need to replace if you passed away.

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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: With higher inflation rates, the average cost of raising a child from birth to age 17 has risen to $310,000 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 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 help ensure your child has the financial resources 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 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. 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, 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.

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 has different needs and considerations when it comes to deciding whether or not they need life insurance. In general, life insurance could 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 or financial advisor 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 10 or 20 years, depending on the amount of life insurance they can afford.

Frequently asked questions

    • 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.
    • 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.
    • If you’re wondering who needs life insurance, you may also be wondering if you should purchase a policy for your child. Whether or not you choose to get life insurance for your child is a personal decision, but there are a few pros you may want to consider. Getting life insurance for your child can help lock in a lower rate and make them more insurable in the future, can act as an investment and can help them keep sufficient life insurance even if they develop a pre-existing condition, such as diabetes.
    • If you have a minor health issue like elevated blood pressure, you can usually get life insurance, but your premium may be slightly higher than you’d pay if you had no ailments. With most life insurance companies, you may be unable to get life insurance if you’ve had cancer or a stroke within a certain number of years. Typically, you can get guaranteed issue insurance even if you have a more severe health issue. Guaranteed issue life insurance is generally more expensive and the death benefit is typically low. However, applicants do not have to complete a medical exam to qualify.