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Does Everybody Need Life Insurance? 5 Reasons to Buy

July 8, 2015
Life Insurance
Five Reasons to Buy Life Insurance
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You probably aren’t among those who need life insurance if no one is counting on your paycheck, but if your death would hurt someone financially, it’s smart to get covered.

Say, for instance, that you’re single, you have no kids or other dependents, and you wouldn’t leave behind debt or expenses that someone else would have to pay. In that case, you can focus on other financial priorities, such as saving for emergencies and retirement, rather than buying life insurance.

If you don’t fit that description, then consider these five reasons to buy.

You’re married

If you died tomorrow, could your spouse pay the mortgage or rent, car loans and credit card bills without your income? If not, consider buying a policy and naming him or her the beneficiary. Death benefits can pay off debts, help your spouse maintain the lifestyle you built together and cover funeral costs. The median cost of a funeral with a casket is $7,045, according to the National Funeral Directors Association.

You have a child

Buying life insurance is a smart move when you have young kids. If you pass before your children can support themselves, the beneficiary — usually the other parent — could use the money to pay for child care and education, among other needs. You can also set up a trust to hold life insurance proceeds for the children and name the trust and trustee as beneficiary. The trustee would spend and manage the money according to the rules set out in the trust document.

[Life insurance quotes are available through NerdWallet’s Life Insurance Comparison Tool.]

You owe money

Co-signers will have to take over responsibility for your loans if you die before you’ve paid them off. To protect your family, friends or anyone else who helped you qualify, buy enough life insurance to pay off your loans and name the co-signers as beneficiaries. This applies to student loan debts in some cases. Although the government forgives federal student loans when the borrower dies, private lenders often require the co-signer to pay the remaining balance.

You have a large estate

You can use permanent life insurance, such as whole life, as a tax planning tool if your estate would be subject to federal taxes. Your heirs could use the money to pay the taxes, potentially saving them from having to sell off assets. Keep in mind that only large estates — $5.43 million for individuals and $10.86 million for couples in 2015 — are taxed at the federal level. These limits change from year to year, depending on inflation.

You own a business

Life insurance can also protect your business and your family if you die prematurely. Your family, for instance, could use the death benefit to pay off business loans that were secured with personal assets, such as your home.

Life insurance for business owners can be used to back buy-sell agreements. If one partner dies, the other can use the death benefit to buy out the rest of the business.

Term life insurance, which covers you for a certain number of years, is the right choice for most people. But you need a permanent policy, which covers you for your entire life, if you plan to use life insurance for estate tax planning purposes or business succession planning.

Ready to explore your options? NerdWallet’s life insurance estimator tool can help.

Barbara Marquand is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @barbaramarquand.

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