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.
Do I need life insurance?
The quickest way to know whether you need life insurance is to ask yourself: Would your death have a financial impact on the people in your life?
If the answer is yes, you may want to consider life insurance.
Good candidates for life insurance include parents of minor children and those with co-owned debts, like a mortgage. Keep in mind that life insurance through your workplace may not be sufficient for your needs.
How does life insurance work?
Life insurance is a contract between you and an insurance company. You pay premiums in exchange for coverage. If you die while the policy is in effect, the company 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 children, for example — can use the money to cover 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 unable to support themselves. Your policy’s payout can help cover living expenses and debts so they can maintain the same quality of life.
Stay-at-home parents or spouses
Even if you don’t earn a salary, you may need coverage. Stay-at-home parents and spouses provide services which are costly to replace, such as child care. A life insurance payout can cover the costs of these services during a difficult time.
Parents or grandparents with dependents
Minor children who are unable to provide for themselves could be at a major disadvantage if your income disappeared. This is especially true if you cover college costs or support someone with a disability. Read more about how to set up a life insurance trust for your children.
Adult children
If you know your parents can't pay for final expenses, you can purchase a life insurance policy on them. This could help cover medical bills or burial costs if they die suddenly but you'll need their consent to buy coverage.
Small-business owners
Your business might struggle if you were to die, especially if you’re essential to its daily operations. A life insurance payout can help business partners or heirs cover expenses, such as buying out your share of the company, paying office rent or getting help in your absence. Read more about life insurance for small business owners.
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.
People who want to cover their final expenses
The median cost of a funeral is $8,300, according to the latest data from the National Funeral Directors Association. Depending on the plan for your funeral, it could cost more. With burial insurance, you could pay your own expenses and keep the burden off those who carry out your final wishes.
Co-signers or co-owners of debt
In most cases, debt doesn't get passed on when you die. But if someone co-signs the debt, they could be left holding the bill. Spouses in community property states like California or Texas may be responsible for some debts, even if they’re not co-signers. You can use life insurance to cover debts other people would be responsible for.
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 is a better move.
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 10 or 20.
Permanent life insurance typically covers the insured person until the end of their life and includes the ability to build cash value.
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 a better choice for most people. You can tailor term life insurance to cover the years when your death would most affect your loved ones and then reassess at the end of the term.
Permanent life insurance
There are some situations in which permanent life insurance makes more sense, especially if you want the policy to pay out regardless of when you die.
Whole life insurance is the most common type of permanent coverage, offering fixed premiums and guaranteed cash value. Universal life insurance is more flexible, offering adjustable premiums and death benefits. Burial life insurance is also a type of whole life insurance that offers small coverage amounts.
» MORE: Types of life insurance
How much life insurance do you need?
The amount of coverage you get depends on the type of financial commitments you’re covering. In general, you’ll want to assess how many years of income you’ll be replacing, any large debts such as a mortgage, and expected educational expenses when you’re deciding how much life insurance coverage you need.
To get a more specific number tailored to your situation, use our calculator to find out how much life insurance you need.
When to get life insurance
In general, it’s worth assessing 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 may 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 lock in a lower rate. Plus, the longer you wait, the greater chance you could develop a health condition that affects your ability to get coverage.
How much does life insurance cost?
The cost of your life insurance policy is driven by a handful of factors and can vary from insurer to insurer. The average cost of buying a 20-year, $500,000 term life policy for a 40-year old in good health is $26 a month, according to Policygenius, a life insurance brokerage.
Your cost will likely differ depending on the following factors.
What about life insurance through work?
You may be able to get group life insurance through your employer. If your workplace offers this coverage for free, there’s little reason not to accept it.
Just know group life insurance is typically capped at one to two times your salary, so it may not be enough to cover all your needs.
Did you know...
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 usually get life insurance online, through a broker or agent, or directly from an insurance company. Some companies may require you to take a life insurance medical exam, while others will simply ask some health questions.
It’s a good idea to compare life insurance quotes from several companies to get the best coverage at the lowest price. Before you commit, research each insurer to verify they have the policies you want, a solid financial strength rating and a good record of customer service.
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