Do You Need Life Insurance?

As part of your financial plan, it’s important to think about what would happen to your family if you were to die. Life insurance may be something you explore as a way to cover final expenses, replace your income or pay off debts.

To determine if life insurance is right for you at this stage in your life, it’s a good idea to learn a little about it. Here is a basic guide to life insurance.

What It Does

Life insurance can protect your loved ones by providing financial stability. Death benefits can replace your income and help family members meet financial obligations like mortgage payments, college expenses or day-to-day living costs.

If you are single with no kids, you might not need to worry about any of these issues. Life insurance can simply cover final expenses like a funeral, burial or celebration of life. It can also pay off medical bills. In fact, that’s another reason to think about life insurance -- debt coverage.

Death benefits can help pay off personal and business debts. There are other reasons to consider getting covered by life insurance including making a charitable gift, to help pay off estate taxes and to ensure business succession.

Who Needs It

Many people may think they don’t need to buy life insurance until they have children. Others have small policies through work and think they are sufficiently covered.

To avoid life insurance mistakes, it’s important to think carefully about your current financial situation and how you would want to leave loved ones if you died. If you are married, a life insurance policy would mean your surviving spouse wouldn’t have to rely only on his or her income to cover monthly expenses like rent or mortgage payments or pay off joint credit card or other debts. If you have children, a life insurance policy can help keep college savings intact.

If you are plan to have children, insurance can protect them financially in the event of your death. If you are a stay-at-home parent, you need to assess the contributions you make to a household. Even if you are not bringing in any money, it would likely still cost quite a bit to replace your contributions, such as child care, in the event you died. If you are retired and/or have grown children, death benefits from life insurance can help with taxes, funeral costs and other immediate needs.

If you are single, you need to look at your obligations. If you are providing support, or would like to, for aging parents or a sibling with special needs, life insurance can help with that. Also, as mentioned previously, life insurance can pay off debt. Plus, when you are young and healthy you will get the best rates on life insurance.

What Kinds Are Available?

Generally life insurance can be categorized as either term or permanent. Term life insurance lasts for a set amount of time (usually 10, 15 or 20 years), and permanent life insurance provides lifelong protection. Term is typically much less expensive, and permanent includes some flexible financial features.

Term insurance is often used for having coverage for the duration of a mortgage or until children graduate from college. If the person dies during the set time of the coverage, the benefit is generally paid out to a specified person or people.

While term life policies have no cash value of their own, that's not true of permanent life insurance; people can earn interest and/or borrow against them. They can be a good financial tool, particularly for high-income earners. There are some additional policy options that might be worth exploring. Ultimately, whether you need life insurance coverage, and how much, will be determined by your personal financial situation.

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