Who Needs Life Insurance & When? | The Ascent – The Motley Fool
Why buy life insurance?
Buying life insurance is important for those who currently have people relying on them. It is also important for those who will have people relying on them in the future. There’s no one answer to the question, who needs life insurance coverage, because many people do. Here are some key reasons to buy coverage.
Loved ones relying on income
It’s common for people to have spouses, children, or other loved ones relying on their income. For example, married couples may take out a mortgage with the assumption both spouses will earn money. If loved ones rely on income, it is important to have life insurance. Otherwise, this could lead to financial disaster in the event of an untimely death.
Loved ones relying on services
When answering the question, who needs life insurance, it’s important to look beyond income. A person who provides valuable services to loved ones also needs life insurance even if they don’t get a paycheck.
For example, a stay-at-home parent or a caregiver to aging parents may provide services that would cost hundreds or thousands of dollars per month to replace in the event of their death. Life insurance should be in place to ensure these services can be paid for if necessary.
Loved ones expected to rely on you in the future
Many young people do not yet have dependent spouses, children, or parents. But it can still be smart to buy life insurance if they expect to in the future. As a result, answering the question, who needs life insurance, requires looking ahead.
Those who expect to have loved ones rely on them in the coming years should think about buying coverage while they are young and healthy. This will reduce the cost of premiums set by the life insurance company. It will also maximize the chances they can get covered before developing any pre-existing medical conditions. Once someone has developed a major medical issue, coverage may be difficult to obtain or quite expensive.
It’s important when buying coverage early to ensure the policy will remain in effect for as long as it is needed. But, many people in their early 20s or early 30s can get a term life policy that lasts for long enough to provide the necessary protection. And buying coverage so young maximizes the chances of getting approved by a wide variety of insurers offering low premium prices.
Funeral costs are expensive
Even those who do not have people depending on them may need life insurance. A policy may be necessary to cover funeral costs. Funerals are expensive, and loved ones could end up paying thousands if a deceased person didn’t have money to cover the costs or life insurance in place to do so.
You own a business with partners
An individual who owns a business with others may need life insurance. When a business owner passes, they may want their surviving family members to receive a piece of the company. Surviving partners may not want to work directly with the surviving family members.
Life insurance could provide the funds for the surviving partners to buy out the family member’s interests. That way, family members would be paid and surviving business partners could retain control over the company.
Does everyone need life insurance?
Who needs life insurance? Many people need the financial protection that life insurance gives. Here are a few examples of people who need coverage.
Spouses or life partners
People who have joined their life with someone else often have shared financial commitments. They should have life insurance in place so their surviving spouse or partner has the money to fulfill those commitments and maintain their quality of life.
Parents
Parents should look into life insurance for families. Most parents should have coverage in place to ensure their children are provided for. Life insurance can provide funds to support children if parents pass away before they are grown. The policy can also pay for the costs of a child’s education.
Caregivers
Those who care for others, such as stay-at-home parents or people who care for their own aging parents, should have life insurance in place. The services they offer have a considerable value. Money may be needed to pay professional caregivers to provide those services in the event of a death.
Business owners
Business owners should consider having a life insurance policy in place as part of a business succession plan. The policy can provide funds to buy out surviving family members so the company’s co-owners can retain control over the company.
People who need help covering funeral costs
Funeral costs are expensive. Anyone whose assets wouldn’t cover funeral expenses should have life insurance. Otherwise, surviving family members could be forced to spend thousands for a burial.
It’s especially important for older Americans to make sure money is available for funeral costs. That’s because there’s a higher likelihood of them passing in the coming years. Life insurance for seniors is available for older people who don’t already have protections in place.
What type of life insurance do you need?
Most people should purchase term life insurance. Term life insurance is in effect for a set period of time. For example, a term insurance policy may be in effect for 30 years. At the end of 30 years, the policy would expire (or could potentially be renewed).
Term life is a good choice for most individuals because people often need life insurance only for a limited time. Eventually, their income or services are no longer needed.
How much life insurance do you need?
Most experts recommend buying life insurance equaling 10 to 12 times the covered person’s income. It’s also advisable to use the DIME method to determine how much life insurance is necessary. This stands for debt, income, mortgage, and education. A policy should provide enough coverage to repay debt, to replace income for a certain number of years, to pay off a mortgage, and to cover a child’s education.
