Who Needs Life Insurance?
Eileen St. Pierre, The Everyday Financial Planner
Life insurance protects anyone who is dependent on your income or who would be responsible for your debts upon your death. Life insurance needs are like fingerprints – no two people’s needs are alike. These needs also change depending on your stage of life or because of specific life events.
Most single people do not have a pressing need for life insurance because no one depends on them financially. There are exceptions:
- Those who provide financial support for aging parents or siblings.
- Those who have debts that would need to be paid off in full at their death.
- Those who wish to buy enough life insurance to cover final expenses such as funeral costs and medical bills.
Single parents definitely need life insurance because their children rely on them for everything, although they may have the hardest time affording it. The single parent should consider the amount of support for children available from the other parent or family members and how long the support will continue.
Married couples with children should give priority to life insurance on the primary earner(s). Many families today have two earners. If a family relies on two incomes, then both parents need insurance. You may want to buy insurance for a non-employed parent, but only if the earner has enough coverage. The death of the primary child caregiver may cause a financial burden for a family because the family will now need to pay for childcare, transportation, and other hard-to-replace services.
Married couples without children usually need little life insurance if both spouses can support themselves and have a low debt load. For a young spouse, life insurance could provide an education fund to increase the spouse’s earnings capacity. An older spouse such as a full-time homemaker may need insurance protection to provide an income for the rest of his or her life.
Retired couples and those planning for retirement may feel their need for life insurance has passed once their children are on their own. However, your spouse may outlive you 10, 20, or 30 years. Having adequate life insurance helps widows and widowers avoid financial hardships during retirement. Life insurance can also be used for estate planning purposes:
- to provide an inheritance to heirs,
- to fund a trust, and
- to make gifts to charitable organizations or support causes important to the individual or couple.
Children generally do not need life insurance. Parents sometimes purchase life insurance on their children to assist with burial expenses or to build cash value that can be transferred when the child turns 21. Another reason would be if children have a health condition that would make them uninsurable when they reach legal age.
Life insurance needs are also influenced by specific life events.
- Becoming a homeowner – Life insurance can be used to pay off a mortgage, sparing your family from having to move to a less expensive home after your death. Update your coverage if you refinance your mortgage.
- Changing jobs – Update your life insurance coverage for your new lifestyle.
- Change of marital status – Make sure you change the beneficiaries on your policy.
- A loved one suddenly needing long-term care—You may be able to use life insurance to pay for long-term care services previously provided by family caregivers or to fund a special needs trust.
“How will my family manage financially when I die?” is a question that few of us really want to think about. If someone depends on your income, it’s a question that you cannot avoid. Life insurance is a simple solution to this difficult question.