Do You REALLY Need Life Insurance?
“Do I need life insurance?” Chances are, at some point in your life, you’ll ponder this most perplexing query. And chances are, if you’re reading this article, you already have. Insurance agencies aren’t above using scare tactics to frighten you into committing to a plan. As a general rule of thumb, be skeptical of anyone who has a vested interest in the contents of your wallet. That goes double for insurance agencies. No matter how hard their advertisements tug at your heart strings, don’t make any hasty decisions. The simple truth is not everyone needs life insurance. We’ve assembled a short risk assessment guide to help you decide whether life insurance is right for you.
Life insurance simplified
At its core, life insurance is a means of lessening the burden on your love ones should the gravest of misfortunes befall you. If you die, will your family be able to sustain itself? Will they be able to pay the funeral and burial services? Will they be able to afford house payments, phone bills and food? By making preemptive payments to a life insurance plan, you can guarantee the financial prosperity of your family in the event of your untimely death.
Who needs it?
If no one depends on your earning capacity, you most likely do not need life insurance. That’s the fundamental rule by which to make your decision. If you died today, would anyone go hungry? Single folks without kids or other dependents have no immediate need for life insurance. It could be used to pay for your burial expenses in the event of your passing, but, as long as you don’t plan on dying anytime soon, it’s not really worth it.
Parents need life insurance to a certain extent. Again, it’s an question of dependence. If your kids rely on your salary for food and shelter, get life insurance. But if they’re college kids on the brink of independence, they might be okay without your post-mortem support.
Couples without children have less pressure to purchase life insurance. If both partners are employed and would be able to subsist without the other’s income, don’t worry about it. On the other hand, if one partner is financially reliant on the other, the breadwinner should consider subscribing to a plan.
Elderly folks, singles and couples alike, typically do not need life insurance. Unless you have an income upon which others rely or have no other conceivable means of paying funeral expenses, there’s no pressing need. As the years wear on, life insurance will become a lot more expensive. The older you get, the closer the reaper looms. Insurance agencies will charge high rates for high risk customers.
There are few more technical considerations to take into account when assessing the need for life insurance.
- Do you already have assets that can support your dependents? As an alternative to life insurance, you can place money in pay-on-death bank accounts or register marketable stocks on transfer-on-death forms.
- How long will it take for your heirs to receive the inheritance? If there is a gap between death and transference (say it gets tied up in probate court, for example), your dependents may need sustenance during that time.
- How much debt/taxes will your estate owe? And do you possess the assets to pay it?
How much life insurance do I need?
There is no easy answer to this question. Some suggest insuring yourself for 5-10 times your annual salary, though applying a universal equation in this scenario is not entirely feasible. Term-life insurance tends to be $300-500 a year, while whole life insurance hovers around $1,200-2,000 annually. A group insurance policy through your employer will often be the most affordable option. You should consider 3 primary factors.
- How much money you’d like your dependent to receive in the event of your death. You can provide just enough money to cover existing debts, or you can ensure a cozy and lavish lifestyle to help the family cope.
- How long you’d like to continuing supporting your dependents subsequent to your passing. If, for example, your children are fresh out the oven, you’ll want to consider a longer plan that will continue to support them until they’re old enough to be self-sufficient.
- How much you can afford to pay on a monthly basis. The reality is we don’t all make enough money to meet yet another monthly bill payment. Do what you can, and weigh the risk of your absence against the state of your present living conditions.
As you compare policies, remember to be on the lookout for hidden costs. You may encounter fees and commissions that do not manifest until you’ve already committed to your policy. Do your research. Google is a good friend. Alternatively, a fee-only insurance adviser can assist in finding a proper policy to meet your needs.