Do You Need Life Insurance? Here’s When to Get It
If people in your life rely on you financially, life insurance can help support them when you’re gone.
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You may need life insurance if anyone relies on you financially.
People who should consider life insurance include parents of minor children and those with co-owned debt, like a mortgage.
Life insurance through your workplace may not be sufficient for your needs.
A plan that pays out a sum of money when you die? Sounds like a nice thing to have. But do you need life insurance if you don’t believe you’ll die anytime soon? While there’s no one-size-fits all answer for who needs life insurance, there are some key scenarios where having coverage is a good idea.
» MORE: Compare life insurance quotes
Do I need life insurance?
The quickest way to know whether you need life insurance is to ask yourself one question: Would your death have a financial impact on the people in your life?
If the answer is yes, then you may want to consider life insurance.
Life insurance is a contract between you and an insurance company. You pay insurance premiums in exchange for coverage. If you die while the policy is in effect, the insurer pays out a life insurance death benefit to your beneficiaries. In most cases, this payout is equal to the face amount of the policy — so if you have a $500,000 policy, your beneficiaries will receive $500,000.
Life insurance beneficiaries — who could be your spouse or dependents, for example — can use the money to cover their financial needs, whether that’s paying household expenses or covering debts.
Who needs life insurance?
Here are a few examples of people who may need life insurance coverage.
Breadwinners
If your spouse or partner relies on your income, your death could leave them without a way to support themselves. The payout for a life insurance policy can help them cover living expenses and pay off debts like a mortgage so they can maintain the lifestyle they’ve become accustomed to.
Stay-at-home parents or spouses
Even if you don’t earn a traditional salary, you may still need coverage. Stay-at-home parents and spouses provide services that can be costly to replace, such as cleaning, cooking and child care. A life insurance payout can help your partner cover the costs of these services during a difficult time.
Parents or grandparents with dependents
Minor children, unable to provide for themselves, could be put at a major disadvantage if your income disappeared. The same is true if you help cover college costs or provide support for someone with a disability. A life insurance policy can help with these expenses for your dependents.
Adult children
If you know your parents won’t have enough money to pay for final expenses, like medical bills and burial costs, you can purchase a life insurance policy on their lives. This will save you from having to cover these costs out of pocket if they die suddenly. Keep in mind you’ll need their consent before purchasing a policy.
Small-business owners
Your business might struggle if you were to die, especially if you’re integral to its daily operations. A life insurance payout can help your business partners or heirs cover a variety of expenses, such as buying out your share of the company, paying office rent and employing additional help in your absence.
If your company relies on a key employee, you might want to take out a life insurance policy on that person. This could be an employee who is fundamental to the company, like a founder or executive, or one who brings in a substantial amount of money. A life insurance payout can offer a financial buffer to offset any losses caused by their death and provide you with funds to hire and train a replacement. Learn more about key person insurance.
People who want to cover their final expenses
The median cost of a funeral with viewing and burial is $8,300, according to the latest data from the National Funeral Directors Association. Depending on your wishes for your funeral, it could cost more. With a burial life insurance policy, you could pay your own way, so to speak, keeping the burden off those who carry out your final wishes.
» MORE: Best burial insurance companies
Co-signers or co-owners of debt
In most cases, debt does not pass to other people after you die. However, if another person co-owns or co-signs the debt, they could be left holding the bill. Spouses in community property states such as California and Texas may also be responsible for outstanding debts, even if they’re not co-owners or co-signers. You can use life insurance to cover your debts if other people would be responsible for them, helping to pay them off in your absence.
Who doesn’t need life insurance?
If no one in your life would be financially burdened by your death, you probably don't need a life insurance policy. Say you’re single and supporting only yourself, or comfortably retired with a paid-off mortgage. In situations like these, you may find that saving and investing your money in other assets is a better move.
» MORE: Average life insurance rates
What type of life insurance do I need?
Typically, life insurance falls into two categories:
Term life insurance is temporary — it lasts a set number of years, such as five, 10 or 20.
Permanent life insurance typically covers the insured person until the end of their life and includes a cash value component.
Both types of life insurance come in different forms, with different benefits and levels of coverage.
Term life insurance
Generally speaking, term life insurance is the more affordable and flexible option, and thus it's the better choice for most people. You can tailor term life insurance to cover the years of your life when your death would most affect your loved ones and then reassess when they are able to support themselves.
Permanent life insurance
There are some situations in which permanent life insurance makes more sense, particularly if you want the policy to pay out regardless of when you die. Types of permanent policies include whole life and universal life. Whole life insurance is the most common type of permanent coverage, offering fixed premiums and guaranteed cash value growth. Universal life insurance is more flexible, offering adjustable premiums and death benefits. Burial life insurance is also a type of permanent insurance.
Use our tool below to identify which type of life insurance may be best for you.
How much life insurance do you need?
The amount of coverage you get depends on the type of financial obligation you’re covering. Use our calculator to find out how much life insurance you need.
When to get life insurance
In general, it’s worth evaluating your life insurance needs after major milestones such as getting married, having a baby, switching jobs or getting a divorce. Because these life changes can have a big impact on your finances, you could find that you need life insurance when you didn’t before.
It’s smart to buy a policy as soon as you decide you need it. Remember that the younger and healthier you are, the more affordable life insurance is. Buying sooner rather than later can let you lock in a lower rate. Plus, the longer you wait, the more chance there is of developing a health condition that could affect your ability to get coverage.
What about life insurance through work?
You may be able to get life insurance through your employer, known as group life insurance. If your employer offers this coverage for free as a benefit, there’s little reason not to accept it, even if the coverage isn’t as robust as you would like.
You can also buy supplemental life insurance to go along with your group life policy. But you may want to shop around to see whether the supplemental life insurance policies you can buy through your employer are a better deal than what you could purchase on your own.
Your group life plan may not be enough to cover all your needs. Review what your employer offers and what you can buy in addition to that policy, and decide whether you want to combine that insurance with your own plan.
Most group life insurance policies aren’t portable, meaning you can’t take the coverage with you if you leave your job. Remember to read your policy’s fine print to understand the terms.
How to get life insurance
Aside from your employer, you can typically get life insurance online, through a broker or agent, or directly from an insurance company. Some companies may require you to undergo a life insurance medical exam, while others will simply ask you some health questions.
It’s a good idea to compare life insurance quotes from a range of companies to get the best possible coverage at the lowest price. Before you commit, research each company to make sure they have the policies you want, a solid financial strength rating and a good record of customer service.
» MORE: Life insurance company reviews