Your Life Insurance Strategy – How to Know if You Need Life Insurance
Life insurance is designed to protect your family and other people who may depend on you for financial support. Life insurance pays a death benefit to the beneficiary of the life insurance policy.
Over the years, life insurance has also evolved to provide options for building wealth or tax-free investments.
Is life insurance only for people who have a family to support? When should you buy life insurance? We’ll go through these questions and common scenarios of when life insurance is a good idea to buy based on different situations. This list will help you decide if it’s time for you to contact your financial advisor and start looking at your life insurance options.
There are instances where life insurance can be beneficial even if you have no dependents, the most basic of which would be covering your own funeral expenses. There may be many other reasons too. Here are some guidelines to help you decide if life insurance is the right choice for you:
At What Life Stage Should You Buy Life Insurance?
The first thing you need to know about life insurance is that the younger and healthier you are, the less expensive it is.
The Best Life Insurance Choice For You Will Depend On:
- Why you want the life insurance (to build wealth, to protect assets, provide for your family?)
- What your situation is
- What stage in life you are in (do you have kids, are you in school, are you starting a business, buying a home, getting married, etc.)
- How old you are
Here is a list of people who might need life insurance at different life stages, and why you would want to buy life insurance at these stages. This list will help you consider various reasons to purchase life insurance and help you figure out if it is time for you to look into buying life insurance or not.
Life insurance should be purchased if you are considering starting a family. Your rates will be cheaper now than when you get older and your future children will be depending on your income. Learn more at Parents: How Much Life Insurance Do You Need?
If you have a family that depends on you, you need life insurance. This does not include only the spouse or partner working outside the home. Life insurance also needs to be considered for the person working in the home. The costs of replacing someone to do domestic chores, home budgeting, and childcare can cause significant financial problems for the surviving family. Learn more at Parents: How Much Life Insurance Do You Need?
The reason a single adult would typically need life insurance would be to pay for their own funeral costs or if they help support an elderly parent or another person they may care for financially.
Otherwise, if one has other sources of money for a funeral and has no other persons that depend on their income then life insurance would not be a necessity.
4. Homeowners and People With Mortgages or Other Debts
If you plan on buying a home with a mortgage, you will be asked if you want to purchase mortgage insurance. Buying a life insurance policy that would cover your mortgage debt would protect the interest and avoid you having to buy extra mortgage insurance when you buy your first home.
5. Non-Child Working Couples
Both persons in this situation would need to decide if they would want life insurance. If both persons are bringing in an income that they feel comfortable living on alone if their partner should pass away, then life insurance would not be necessary except if they wanted to cover their funeral costs.
6. People Who Have Life Insurance Through Their Work
If you have life insurance through your work, you should still buy your own life insurance policy. The reason you should never only rely on life insurance at work is that you could lose your job, or decide to change jobs and once you do that, you lose that life insurance policy. It is not strategically sound to leave your life insurance at the hands of an employer. The older you get the more expensive your life insurance becomes. You are better off buying a small backup policy to make sure that you always have some life insurance, even if you lose your job.
7. Business Partners and Business Owners
If you have a business partner or own a business and there are people relying on you, you can consider purchasing a separate life insurance policy for the purpose of your business obligations.
8. Buying Life Insurance on Your Parents
Most people don’t think of this as a strategy, buy it has been used and can be a smart thing to do. Life insurance on your parents secures a death benefit to you if you put yourself as the beneficiary of the policy you take out on them. If you are paying their premiums you will want to make sure you make yourself an irrevocable beneficiary to secure your investment.This way when your parents die, you secure the amount of the life insurance policy. If you do this while your parents are young enough, it may be a financially sound investment.
Most people would suggest that children do not need life insurance because they have no dependents and in the event of their death, although it would be devastating, life insurance would not be beneficial.
3 Reasons to Buy Life Insurance For Children
- If you worry about your children eventually getting an illness. Some families have concerns about their children’s long-term health due to hereditary risks. If parents fear that eventually, this may make them uninsurable later in life, then they could consider buying their children life insurance so they don’t worry about failing medical exams later when they need life insurance for their own families. Some people look at critical illness insurance for children as well.
- Some people purchase life insurance for children as they reach early adulthood to help them get a head start on life. A permanent life insurance policy may be a way to build savings for them and give them an opportunity to have a life insurance policy that pays for itself by the time they have a family of their own, or if they want to use the cash portion to borrow against for a major purchase. Life insurance for children may be purchased as a gift to them.
- If you would want to receive some sort of death benefit to help you deal with the death of a child and cover funeral expenses if something were to happen to them. The loss of a child is devastating and although children do not provide financial support, they play an important role in the family and their loss can have effects on many levels.The loss may make it very difficult for you to work, and you may suffer financial losses, require psychological help, or require help with surviving children as a result of their passing.
As long as you do not have people depending on your income for support, life insurance at this stage in life would not be necessary, unless you do not have any other means to pay for your funeral expenses or decide you want to leave money as a legacy. One useful thing about life insurance if you are older, is the tax savings elements if you want to preserve the value of your estate. You should speak with an estate attorney or financial planner to understand if buying life insurance in your later years may provide tax benefits.
Life Insurance as a Strategy to Protect and Build Wealth
When you buy life insurance you are looking to protect the lifestyle of your family or dependents if you should die.