A Guide to Who Needs Life Insurance

Insurance, Life Insurance
A Guide to Who Needs Life Insurance

Life insurance can fill a wide variety of needs, including covering the finite years of a mortgage and protecting the interests of a special-needs child who will need financial support after you’re gone.

In fact, 63% of Americans consider life insurance a necessity, according to the nonprofit industry group Life Happens. But 30% say they don’t have enough coverage, 19% have only group life insurance (the coverage that’s available through work and often doesn’t provide enough money to meet a family’s needs), and 43% have none at all, according to Life Happens and industry group LIMRA.

Here’s a guide to who needs life insurance and what kind of policy likely works best in each situation.

Who needs life insuranceHow life insurance can helpBest option
BreadwinnerLife insurance can provide “income replacement” so that your family can continue to pay everyday expenses.Term life insurance can cover your working years.
Stay-at-home parentLife insurance would cover the cost of paying for services the parent does for “free,” such as child care.Term life can cover the years your kids are young.
Divorced parentA policy could cover the support payments that a divorced parent makes.Term life can cover the years of support payments.
Parent of a special-needs childLife insurance can make sure the child will have financial support no matter when a parent dies.Permanent life insurance provides a payout no matter when you die.
Homeowners with a mortgageA policy can cover mortgage payments, so your family doesn’t have to move if you die.Term life insurance can match the years of a mortgage.
Someone with co-signed debt (such as student loans or credit cards)Life insurance could cover the cost of the debt.Term life can be timed to end with the debt payments.
High net worth individualLife insurance can provide funds for heirs to pay estate or inheritance taxes.Permanent life insurance is best for those with estate tax concerns.
Someone who wants to provide an inheritanceIf you don't have a lot of wealth, life insurance can provide a small inheritance to heirs.Permanent life insurance will pay money for the inheritance, no matter when you die.
Business ownerLife insurance can pay off business debts if you die, help heirs to the business pay off estate taxes, or fund a buy-sell agreement that allows a business partner to buy out your share.Term life or permanent life, depending on the issue to be solved.
Investor who has maxed out other retirement plansLife insurance with a cash value component can provide a supplemental source of retirement savings.Permanent life insurance, which builds cash value that you can access.
People concerned about paying for their own funerals.Small life insurance policies can pay for your funeral and final expenses.Permanent life, such as final expense insurance.

NerdWallet’s life insurance comparison tool can help you figure out how much coverage you need and compare rates. People who are interested in permanent life insurance should consult a financial advisor to find the right policy type.

Aubrey Cohen is a staff writer at NerdWallet, a personal finance website. Email: acohen@nerdwallet.com. Twitter: @aubreycohen.


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