Who actually needs life insurance?
If you have kids or are worried about passing on debt, the added security may be worth it


Between health insurance, dental and vision insurance, car insurance, and homeowners or renters insurance, an additional form of coverage may be the last thing you want to think about. But given the uncertainty that life can bring, it's worth considering whether life insurance makes sense for you.
Not everyone needs it. But if you have children, for instance, or you're worried about passing on debt, then purchasing life insurance for added security may be worthwhile.
What does life insurance offer?
To understand whether or not life insurance makes sense for you, it's first helpful to understand what life insurance actually does, and how it works.
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Put simply, "life insurance is designed to provide financial support to your loved ones after you die," said U.S. News & World Report. When you buy life insurance, you "enter into a contract with the insurance company stating that in exchange for premium payments, the insurer will pay out a lump sum, also known as a death benefit, to the beneficiaries of your choice upon the insured person's passing."
How much your beneficiaries receive typically "is equal to the face amount of the policy — so if you have a $500,000 policy, your beneficiaries will receive $500,000," said NerdWallet.
It's up to the beneficiaries to decide what to do with those funds, but they can come in handy in "a number of ways," said Investopedia, including "covering funeral and burial expenses," "paying off any outstanding debts owed by your estate," or "creating a supplemental source of income for your loved ones."
Who should get life insurance?
When it comes time to decide whether to buy life insurance, the "key question" to ask is "whether there are people in your life, including family members and employees, who depend on you financially," said Investopedia. However, it's also worth considering your financial goals — for instance, you may know you'd want to contribute to a grandchild's college education or donate to a certain charity in the event of your death.
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More specifically, people in the following situations could likely benefit from life insurance:
- Parents with young children, or a special needs dependent who they care for.
- People who have a partner that lives off of their income.
- Individuals hoping to contribute to mortgage payments or college tuition for their family.
- Those who want to avoid leaving behind debt (including student loan debt), or cover the cost of their funeral or estate taxes.
- Business owners who have employees or business partners reliant upon them.
On the other hand, "if no one in your life would be financially burdened by your death, you can likely put off buying a life insurance policy," said NerdWallet.
However, it's worth noting that the younger and healthier you are, the more affordable life insurance is, so "if you see major life changes on the horizon, such as marriage or children, it may be worth exploring your options to lock in a good price at the right time."
What type of life insurance should you get, and how much do you need?
Once you have decided to purchase life insurance, you will need to determine what type of life insurance to get, and how much coverage you need.
Generally speaking, life insurance policies "fall into one of two categories," said Investopedia:
Term life insurance: With term life insurance, you're covered for a certain period of time, like 10 or 20 years. The upside is that "it's typically more affordable and can be tailored to cover the years you're most financially vulnerable," said Bankrate.
Permanent life insurance: As the name suggests, permanent life insurance "covers you for your lifetime, as long as premiums are paid," said Investopedia, making it a good choice if you're considering estate planning or charitable giving. While "typically more expensive," permanent life insurance policies "offer lifelong coverage and can accumulate cash value over time," said Bankrate.
As for how much coverage makes sense, one way to calculate that is by looking "at your current income, debts, investments and other financial assets," said U.S. News & World Report. That said, you'll also want to "take into consideration future expenses, such as college tuition for your children," which is why "speaking with a financial advisor about your life insurance needs may also be helpful."
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.
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