5 Reasons to Get Life Insurance

Life insurance can help you: Cover final expenses. Leave an inheritance. Cover large debts. Replace your income. Save for retirement.
Learn more about the top five reasons people buy coverage.
2022 NerdWallet Life Insurance Study
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Deep dive

Why get life insurance?

According to a new NerdWallet study, the most common reason Americans buy life insurance is to cover final expenses. The second most commonly selected reason is to leave an inheritance, followed by covering large debts, replacing an income and building an investment.

The median cost of a funeral in 2021 was $7,848, according to the National Funeral Directors Association. A small permanent life insurance policy, such as whole life, can help your beneficiaries cover such costs after you die.

» MORE: How to use life insurance to pay for final expenses

Life insurance can be an effective way to pass on wealth. The death benefit goes directly to the beneficiaries listed on the policy. They can use the money for any purpose and typically don't have to pay income tax on the proceeds.

» MORE: How to use life insurance to leave an inheritance

In some cases, your debts can become the responsibility of others after you die. For example, co-signers on a loan are equally responsible for the debt. A life insurance payout can help them pay off the balance if you’re no longer around.

» MORE: How to use life insurance to cover large debts

If other people rely on your income, your death could place a significant financial burden on their lives. The payout from a life insurance policy can help them cover living expenses in your absence.

» MORE: How to use life insurance to replace your income

Permanent life insurance policies typically include cash value that increases over time. A portion of your premium funds the cash value, and the money grows tax-deferred. You can withdraw or borrow against the value while you're still alive.

» MORE: Buying Life Insurance as an Investment

While all of the above reasons are valid, the main purpose of life insurance is to replace your income.

“Life insurance offers peace of mind for you and helps to ease the financial burden on your family if you die prematurely. Your loved ones will be able to cover everyday living expenses as well as plan for the future using the payout from your policy,” says Katia Iervasi, life insurance expert at NerdWallet.

The basics

If your death would place a financial burden on others, you may need life insurance.
There are two main types of coverage: term and permanent life insurance.
The amount of coverage you need depends on the reason you're buying life insurance. Use our online calculator to find out the right amount for you and your family.