Do You Need Life Insurance?

Losing a loved one is hard enough without the added financial burden of potentially losing a household income. This is where life insurance comes into play.

Life insurance provides loved ones a lump sum of money if the policy owner passes away while the policy is in place. This allows family to continue to be cared even after death.

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  • You need life insurance if someone is dependent on your future income.
  • Caretakers, such as stay-at-home parents, also need life insurance, even if they don’t have an income.
  • Business partners should also consider life insurance to protect the business if one of the partners passes away.

Who Needs Life Insurance?

The bottom line is: If you have people relying on your income, you need life insurance! It's especially important if you don't have savings to cover their needs.

Parents

Perhaps the most obvious people who need life insurance are parents, who need to provide for any children if one or both caregivers pass away unexpectedly. It provides a lump sum that a surviving parent can use to pay off the house, send the kids to college, or simply use it to maintain their current lifestyle. 

It's hard enough to lose a parent or spouse, so having life insurance ensures that the family doesn't also have to deal with financial hardship after a passing. 

Just because a stay-at-home caregiver may not bring in an income doesn’t mean the family isn’t relying on them financially, so it's important for stay-at-home parents too. If a stay-at-home parent passes away, the surviving spouse will need to arrange for childcare, housekeeping, cooking and meal prepping, and more (often unseen) tasks.

People with cosigners on their debt

This might not be something you think about when someone cosigns a loan for you, but if you pass away, that debt will become theirs to pay.

If you have debt that has a cosigner, you’ll want to get a policy that will cover the balance of the debt owed and make the beneficiary the cosigner. That way your financial obligations don't pass on to someone else.

For example, let’s say someone buys a car, takes out a 5-year loan for $20,000, and their parents cosign. That person will want to take out a $20,000 5-year term policy. This will be inexpensive but will provide their parents with enough funds to pay off the debt should they pass away. 

Business partners

If someone owns a business with a partner, what happens if one of them dies? You may have heard stories about business owners who died and whose children became partners in a business they had no idea how to run. Life insurance coverage avoids this!

If two business partners both have insurance policies, the second partner can use the proceeds to buy the portion of the business from the heirs that belonged to the first partner, who passed away. This way, the family of the first partner will get compensated for their portion of the business and the second business partner doesn’t find themselves with stakeholders they didn’t choose.

Other caretakers

Even if you don’t have children, debt, or a business partner, you might still have someone relying on you who would suffer financially if you were to pass away. 

For example, if someone spends a lot of time caring for a parent, they may not support them financially but they are certainly checking on them, fixing things around the house for them, driving them to doctor's appointments, and picking things up from the store for them. 

In the case of the child's death, who will care for their parent? The parent will likely need to hire someone to do these caregiving chores, putting a strain on them financially. Life insurance can provide them with the funds to fill this need.

Related: Best Life Insurance Companies

How Much Life Insurance Do You Need?

The first step to figuring out how much life insurance you need is to assess the needs of the people who rely on you. 

If you're a parent, you'll want to keep in mind how much your family needs. Think of a parent's life insurance like a safety net. You will want your insurance to cover paying off all your debts, help get your kids to college, and provide a monthly income for your spouse. 

Let’s say you have two kids, aged 3 and 5, and a $300,000 mortgage. Your back-of-the-envelope math might look something like this.

  • $300,000 – mortgage
  • $100,000 – college tuition
  • $540,000 – general living expenses ($3,000 per month for 15 years)

This means you’ll need a 15-year policy for $940,000, which you’ll probably round up to a million. 

Business partners will want coverage that is equal to, or a bit above, the value of their equity in the business.  If you own half of a million-dollar business, you’ll want $500,000. (Speak to a lawyer about how to set this up so your partner can’t just take off with the $500K!)  

If you have someone else relying on you, figure out the value of the services you perform. If you do about $500 a month worth of services for your 86-year-old mother, you might consider a 15-year $100,000 policy. That will give her $500 a month for 15 years, plus a little extra. 

How To Get a Life Insurance Quote

Once you've determined you need insurance, you'll need to get a quote. You'll want to get several quotes so that you can ensure you're getting the best deal. On average, life insurance costs about $26 a month, but it can range considerably based on your health, lifestyle, and other factors!

A very easy way to get several life insurance quotes at once is to use a company like Policygenius. It's free to use and aggregates quotes from many different companies so you can get a bunch of quotes with only one application.

To get your quotes you'll need the following information:

  • Your age, gender, date of birth, and ZIP code
  • Individual and household income
  • Your height and weight
  • Basic medical details
  • Hobbies and lifestyle, particularly anything dangerous like skydiving or smoking

If you're also “shopping” (yep, that's what they call it) for your spouse, you'll need the same information from them.

Once you get your quotes, you'll choose the company you want to buy from and fill out a more detailed application to get your final rate and policy. You may also have to complete a simple medical exam before the policy is actually issued.

Get life insurance quotes with Policygenius here.

Woman explaining life insurance policy. Guide to who needs life insurance.

Who Doesn’t Need Life Insurance?

Two kinds of people don’t need life insurance: those who don’t have anyone relying on them and those whose assets can provide for their loved ones after they are gone. 

If you are single and aren’t supporting anyone, either financially or with services, and you have enough in savings to cover any final costs, such as a funeral and a lawyer or your estate, then you probably don’t need life insurance. 

You also don’t need coverage if you have enough savings to continue to support those you leave behind. Remember the person who does chores for their elderly mother? If that person has $100,000 in their estate, their mother can use that to cover her needs.  

FAQs

Do kids need a life insurance policy? 

For the most part, kids do not need life insurance. 

There are two reasons to buy life insurance for your kids. One is for final expenses and to provide income for you to take time off work if your child were to pass away. 

The other is to guarantee eligibility in the future. A person can be denied coverage if they have certain health conditions. Buying life insurance now may keep their eligibility open in the event they develop a health condition later in life. 

At what age should you buy life insurance?

There isn’t a set age when you should automatically buy life insurance. If you don't have a spouse or kids, you may not need to purchase any. 

The reason to buy life insurance even if you don’t need it is two-fold: to lock in a low rate and to maintain your eligibility. As you get older, prices rise every year. And, you may be diagnosed with a health condition later in life that makes you ineligible for life insurance. 

What is the difference between term life insurance and permanent life insurance?

Term life insurance pays a set death benefit if the policyholder dies within the term of the policy. For example, you could have a million-dollar 20-year term policy. In this case, if the policyholder dies during the 20 years the policy is active it will pay out the million-dollar death benefit.

If the policyholder does not die during the term, it will expire after 20 years.

The vast majority of people will benefit the most from term life insurance. This type of policy is inexpensive and guarantees a set death benefit if you die while the policy is active. 

A permanent policy, however, covers the policyholder for their entire life. Each month the policyholder makes their payment and part of it goes to pay for the insurance and part goes into what they call “cash value.” The cash value component can be borrowed against or used to pay future premiums. There are many different versions of whole life insurance products and they all work a bit differently. 

Read more: Term vs. Permanent Life Insurance

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I'm an award-winning lawyer and personal finance expert featured in Inc. Magazine, CNBC, the Today Show, Business Insider and more. My mission is to make personal finance accessible for everyone. As the largest financial influencer in the world, I'm connected to a community of over 20 million followers across TikTok, Instagram, YouTube, Facebook and Twitter. I'm also the host of the podcast Erika Taught Me. You might recognize me from my viral tagline, "I read the fine print so you don't have to!"

I'm a graduate of Georgetown Law, where I founded the Georgetown Law Entrepreneurship Club, and the University of Notre Dame. I discovered my passion for personal finance after realizing I was drowning in over $200,000 of student debt and needed to take action-ultimately paying off my student loans in under 2 years. I then spent years as a corporate lawyer representing Fortune 500 companies, but I quit because I realized I wanted to have an impact; I wanted to help real people and teach them that you can create a financial future for yourself.

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Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.