Life insurance is tricky. There are scenarios in which it’s vital to your family, but there are also instances when it may no longer be needed. If you have term life insurance, there may be a time when having it no longer makes sense.
Cash-value policies, on the other hand, accumulate value and provide the coverage you won’t outlive, as long as you keep up the premiums. Whole life, variable life, and universal life are three of the flavors you can choose. Even cash value insurance shouldn't just sit there, however.
Not everyone needs life insurance. Those who’ve accumulated enough wealth and assets to care for their own and their loved one’s needs independently in the event of their death can forgo paying for life insurance, especially if it's a term policy. On the other hand, there are people whom experts say should never be without life insurance; these groups of people are listed below.
- Life insurance is not for everyone, but some individuals and circumstances make having life insurance a smart idea.
- If an individual has accumulated enough wealth to take care of their family upon their passing, then life insurance may not be necessary.
- Couples that have built a life together should have life insurance in case one of them passes away so that the other can maintain the same quality of life.
- Homeowners should take out life insurance so that the proceeds of the policy can go towards paying the mortgage.
- People with children are strongly recommended to have life insurance so that the needs of the child and remaining living spouse can be taken care of.
- Business owners and those who want to pass down a financial legacy are also advised to purchase life insurance.
What Is Life Insurance?
Whether you’re just married, domestic partners, or celebrating your 20th anniversary, you and your significant other have planned a life based on a certain income level. Unless each of you is able to maintain that income level on your own, it’s important to have life insurance to prevent a drastic change of lifestyle when one of you dies.
This is true even when you're both still employed if both partners hold jobs. Some spouses or partners may want or need to take an extended break from work following the death of their loved one.
Life insurance affords that chance to grieve or readjust to new life circumstances, says Jason Tate, ChFC, CLU, CASL, owner of Jason Tate Financial Consulting in Murfreesboro, Tenn.
A home mortgage is one of the largest assets and liabilities on a person's personal balance sheet. If a homeowner dies before the mortgage is paid off, beneficiaries and the lender can be protected by the proceeds of a life insurance policy, says Tate. “The lender wants to know that the mortgage payment can be covered and the beneficiaries need the ability to keep the house payment paid and prevent the second tragedy of being forced out of their home while grieving.”
New Parents and Parents of Minors
A new baby is a source of pride and excitement. It’s also a tiny person who, for the next 18 years or more is financially dependent on you.
“At the core of that is the responsibility for both parents to provide for a surviving spouse and child or children,” says Tate. “Life insurance provides tax-free money to surviving spouses or guardians and children for income replacement or debt payoff, which allows the family to maintain their current lifestyle.”
Life insurance planning should look beyond a child’s first 18 years, Tate emphasizes. Parents wanting to provide for their children’s college education in the event of their passing should consider that expense when determining the amount of life insurance to purchase.
The loss of a child could be very devastating for a family and have parents wanting, or needing to take time off of work. On top of that emotional toll, there are funeral and burial costs to deal with. “It’s uncomfortable for parents to imagine, but families should be protected with life insurance in the event of the tragic premature passing of a child,” says Tate.
Many times a minor child can be added to an adult's policy via a child rider endorsement at a low cost. “That rider can typically remain in effect until the child reaches age 18,” says Tate.
Other policy alternatives include purchasing a whole life policy that a child can have for the rest of their life. “That provides insurability guarantees regardless of health,” says Tate.
Parties to a Divorce
A trip down the aisle rarely includes plans to uncouple. But should it happen, don’t be surprised if the judge or mediator suggests both spouses purchase life insurance on themselves for the benefit of the other spouse if minor children or financial responsibilities exist post-divorce.
“The policy coverage might extend for a certain period, making term insurance an appropriate fit for the situation,” says Tate.
The majority of individuals who are single, financially independent, have no dependents, and do not own a business, do not need life insurance.
Business Owners and Partners
A new business comes with inventory, investment, and, many times, debt. “In order to provide solvency, business owners must protect their personal and business interests with life insurance in the case of a premature passing of an owner,” says Tate. Insurance on the owner could help the surviving spouse weather the transition until the business can be continued or sold.
If you have a business partner, that person is the equivalent of your professional spouse. Just like your domestic partner, business partners need to be protected with life insurance in the event of the other’s demise, Tate explains. Insurance should cover each partner and establish how a transition will occur if one of them dies.
“When a business partner passes away, money helps purchase the remaining stock or business interest from the deceased's estate or family. This assures business continuity for business customers, and creates an estate that immediately establishes value on the asset for the deceased's estate,” says Tate.
Those Wanting to Leave a Financial Legacy
Generous relatives who want to pass on money to their beneficiaries for legacy purposes should purchase life insurance. Whether grandparents want to provide for their grandchildren’s education or an individual wants to fund medical equipment for a local hospital, life insurance can provide money to beneficiaries, usually tax-free, according to Tate.
Which Type of Life Insurance Is the Most Affordable?
Term life insurance is the least expensive option for getting a death benefit. However, the policy will expire when its term runs out and does not accumulate any additional cash value.
Who Would Not Likely Need Life Insurance?
Single individuals or those without dependents, and who are themselves financially independent may not benefit much from life insurance. Although, such individuals may still wish to purchase coverage in order to leave a legacy upon their death.
At What Age Should You Buy Life Insurance?
In general, life insurance is cheaper when you are younger and healthier. Therefore, you should buy it as young as possible if you think that you will need it presently, or in the future. For instance, a young couple may buy life insurance when they become engaged or when they have a child.
What Happens If You Have No Life Insurance?
Those without life insurance may pass away with financial obligations such as debts and unpaid bills that become the responsibility of their heirs.
What Age Should You Stop Life Insurance?
If you have a term policy, the term should end once all obligations that the death benefit would be meant to cover have passed. For instance, after a child has finished college and can support themself financially. A permanent policy lasts your whole lifetime, so as long as it is paid up, it should be kept indefinitely. For permanent policies that are no longer needed, you can surrender the policy and receive back the cash value it contains.
The Bottom Line
There are many good reasons to carry life insurance though it's not a must for everyone. It's important to take stock of your financial and life situation and determine what is in the best interest for you and your family.