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Who needs life insurance?

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You may be wondering “should I get life insurance?” Most people like the idea of leaving a sum of money to their survivors when they pass away. However, you may be wondering whether life insurance is the right method, or if you should opt for a different financial vehicle.

More than half of Americans live on dual incomes– and 42% of families would be financially burdened within 6 months of one income provider passing, according to LIMRA’s annual Life Insurance Barometer Study. If losing one stream of income would leave your family financially vulnerable in the event of your passing, life insurance may be right for you.

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 $7,640. 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 types of people who 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

The kids may have grown up and gone to build their own lives, but it doesn’t 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.

Life insurance can help you provide for your kids and grandchildren. 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, think about your spouse — he or she may need income after you are gone. “If your spouse outlives you for 10 or even 30 years, would your current financial plan provide for them and ensure they can maintain the standard of living they’re accustomed to?” asks Rothschild. You may also want to consider retirement. If you were to pass away, would your spouse have enough money saved to retire comfortably?

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. Life insurance could also help these loved ones cover your funeral costs and certain debt obligations after you’re gone.

Or, perhaps your heart belongs to a charity or a church – life insurance can help you leave it a legacy.

If you co-own a business, and have employees or a business partner who depend on you financially, you can leave money to help them get along in your absence.

In addition, insuring yourself while you’re younger for such events makes financial sense. If you get life insurance while you’re young, you can lock in a low premium so that your rates don’t skyrocket even if you were to develop a pre-existing condition.

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, says Komer. “If you had life insurance, you could fund a retirement plan for employees,” she says, adding that providing such perks can help retain good workers.

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. “Life insurance for business needs can be complicated, so it is important to work with a qualified insurance professional or adviser who can review your options,” Rothschild says.

4. Retirees

Retirement is the time to relax, especially if your house is paid off and both you and your spouse are set with retirement income. But you may still need life insurance as a way to protect your heirs. Consider the following scenarios:

  • A policy could provide funds for your family to pay estate taxes and other expenses associated with your death, including funeral costs.
  • A life insurance policy can free retirees up to spend and enjoy their savings knowing their kids will receive a death benefit.
  • Retirees can use life insurance to help each heir get an equitable distribution of money.

For example, imagine a situation where a small-business owner has two sons and a daughter. The death benefit payout of a life insurance policy can compensate the kids who don’t receive the same amount of the business.

5. Stay-at-home parents

In a world of stagnating incomes, 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?

Once you answer the question “do I need life insurance,” you may be wondering how much you need. There are several ways to calculate how much life insurance you need, based on the reason you’re buying it. 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.

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 get life insurance quotes from the top life insurance companies online in a few clicks.

How much does life insurance cost?

The average cost of life insurance varies by state. Typically, premiums hover between $600 and $700 per year.

Should I get my child a life insurance policy?

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 make them more insurable in the future, can act as an investment and can help them keep great life insurance even if they develop a pre-existing condition such as diabetes.

Written by
Lizzie Nealon
Insurance Writer
Lizzie Nealon is a former insurance writer for Bankrate. Her favorite part of the job is making home, auto and life insurance digestible for readers so they can prepare for the future.
Edited by
Insurance Editor