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 insurance||How life insurance can help||Best option|
|Breadwinner||Life 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 parent||Life 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 parent||A 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 child||Life 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 mortgage||A 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 individual||Life 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 inheritance||If 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 owner||Life 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 plans||Life 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.
Image via iStock.