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Do You Need Life Insurance? 10 Different Situations You Can Use Life Insurance

Life insurance policies protect your financial dependents by paying a death benefit to your beneficiary(s), and, for some, it’s also a tax-free, wealth-building tool. While the majority of Americans would like to have life insurance, a large percentage fail to obtain it. This lapse is often because consumers don’t understand the ways life insurance can be used during various stages of life and the different situations whereby it’s a necessity, not a luxury. 

Who Needs Life Insurance? 

Families have different needs, and these needs appear at various stages of life. Let’s explore some of these situations so you can better determine if you should consult a broker about life insurance: 

1. You Are The Head Of Household 

Term life insurance is a great coverage option for those in their working years, particularly when they’re the household’s breadwinner. The insurance serves as an income replacement so that your family can continue their lifestyle and pay for necessary expenses in your absence. (Understanding Term vs Whole life)

2. You Are The Caregiver To Children 

Term life insurance is also a great option when you’re in your childbearing years and have or plan to start a family. The life insurance benefit allows the surviving working parent to pay the added expense of childcare in the caregiving parent’s absence. 

3. You Are A Divorced Parent 

Divorced parents, especially those who’ve remarried, would be prudent to look into term life insurance policies. Other assets may be yielded to the new spouse or divided by a blended family. Life insurance benefits would take the place of those missing support payments. 

4. You Have A Special Needs Dependent 

Whether it’s a child, spouse, or elderly parent, if you are the caretaker of a person with special needs, then you should have a permanent life insurance policy to ensure their care goes forward in your physical and financial absence. 

5. You Have A Large Co-Signed Debt 

Matching your term life insurance to your mortgage length is a prudent move for families with significant mortgage balances, especially those where one spouse stays at home. This ensures the family doesn’t have to move if something happens to the mortgage payer. Keep in mind that the same can be done with other large co-signed debts, such as student loans; the insurance can even be timed to end when the debt is paid in full. 

6. You Have Either No Or Significant Net Worth 

Permanent life insurance can set your mind at ease that heirs will have sufficient funds to pay inheritance taxes and other costs when you’re leaving them a large estate. Likewise, for those without any monetary assets, it can provide the inheritance you want to leave your heirs. 

7. You Own A Business 

Both term and permanent life insurance policies can offer business owners a way to ensure their business isn’t a burden to their heirs. The benefits can be used in several different ways, including paying off family-owned business debts so that doors stay open, cover estate taxes, or fund a buyout/sellout with a partner. 

8. You’ve Exhausted Other Retirement Assets 

Obtaining permanent life insurance prior to retirement allows for it to build cash value that can be used as part of your retirement savings. In other words, should you need it, you can access the cash value component to help fund retirement. 

9. You Worry About Your Burial 

Whether you don’t want to be a burden to family or don’t have close family, permanent life insurance can ensure all your final expenses, such as debt and funeral costs, are covered. These are usually small and very inexpensive, such as a final expense insurance policy. 

10. You Have A Policy At Work 

If you have a life insurance policy at work, it’s still a good idea to get at least a small supplemental policy on your own to ensure you always have protection. You never know when you could decide to leave a job or lose it, which would leave you without coverage. Remember, policy premiums increase with age, which means it’s best to seek out your non-employer policy as early as possible to get the best rates. 

The Takeaway 

The above ten situations are case in point why no one should view life insurance as a luxury. Whether you’re a parent to a special needs child, have a lot of debt, have a lot of wealth, or just want to ensure your debts and burial are paid for upon death, almost every situation in every American household justifies the need for life insurance. 

Updated on April 8, 2020

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