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I Know Most People Need Life Insurance, But Do I Need Life Insurance?
Insurance. We don’t need it until we do.
Most people don’t want to waste the money, I know that’s how I thought of it. If you outlive your life insurance, that’s essentially what will happen. Let’s say you pay $30/mo for a 20yr term life insurance policy and live to see the end of it, you’ll have paid $7,200 and nothing to show for it. This is why a lot of Millenials forgo life insurance and rely on group policies provided by their employer or other entity.
The problem with this is that group policies provided by the employer are often far less from what families actually need. Most offer one years’ worth of death benefits, while others might offer a straight $100,000 to the beneficiary. But, what happens after that year is up? Or after the death benefit runs out? You might leave your unfortunate husband to sell the house, move in with his parents and struggle to make ends meet.
Did You Know?
84% of Americans think that most people need life insurance, but only 70% of those think that THEY need it. Additionally, of the 70 percent, only 41% actually have life insurance.
This was me. Like many millennials, life insurance was something I kept putting off. I had more important bills to pay like my student loans and car payments, credit cards, not to mention a family to support. But, my judgement was clouded, I needed life insurance.
Look at it this way, life insurance makes sure that your plans for the future don’t die when you do. It’s there to act as a security blanket for your family so that they won’t be burdened by financial implications upon your death.
To determine whether or not you need life insurance, ask yourself these questions.
- Do you have a family that depends on your income?
- Are you a caretaker of an adult parent or other dependent?
- Will your death cause a financial burden to your family?
- Will you be leaving unpaid debts that your spouse won’t be able to pay for?
- Do you have enough savings to cover funeral and final expenses?
- Will your spouse be able to send your kids to college without your help financially?
- Do you want to leave a legacy of gift money upon your death?
Depending on your answers to these questions, you will most likely need life insurance. Here’s why:
Reasons you need life insurance
For those who have minor children
Kids can be expensive and there’s really no way around that. If you died, your other half would have to fork up the money to pay for things like childcare (because he is now a single parent that still needs to work), clothing, food, diapers, schooling (yes, even grade school requires money), gifts (for birthdays), and college to name a few.
The average cost of raising a child to 18 years is $260,000 for basics, according to NerdWallet. Will your spouse be able to afford this with his income alone?
Those that are married
Here’s a scenario. Jack and Jill get married at 24. They each have student loan debt totaling $65,000 and they each have car notes totaling $50,000. If one or the other dies, one of them will be responsible for paying off the debt left behind. They depend on each other’s income so therefore, they need life insurance.
If you support a disabled adult
You can almost count this like having a dependent. They depend on you for their clothes, food, and possibly housing. You take care of the dishes, the groceries, the errands. While you may or may not financially contribute, your death will still become a financial burden to the ones you leave behind. They will have to find someone to do everything that you did, at a cost. If the disabled adult that you care for is a parent, and there are no other children that can take on the task, then their option is to try to hire home health or look for shelter in an assisted living home. Of course, this is not cheap.
You want to cover the funeral expenses
Funeral expenses aren’t cheap. In fact, the median cost of a funeral with viewing and burial was $7,360 nationally. But, this is a median number. If you add a vault, that number increases to $8,755. This also doesn’t include an obituary, cemetery fees, flowers, or markers, which puts the grand total to just over $10,000. Unless you have enough cash to cover these expenses, life insurance is a great option for you.
Parting (a funeral blog) breaks down the costs of having a funeral in this post very well.
You want to leave a gift behind
If you a just a generous person by heart, than this option would probably catch your eye. Let’s say, all your debt is paid off, you have your kids’ college fully funded, you have enough cash to leave behind to cover funeral expenses and have invested enough to leave behind a steady income for your loved ones. If you want to leave a legacy, a trust fund, a gift to your loved ones or a charity, than perhaps purchasing a life insurance policy is for you.
For those who are business owners/partners
Do you own a business? Will your business partners be able to keep the business going if you died? If your answer is no, then it’s a good idea to purchase life insurance. Keep in mind that you can purchase life insurance for your business using a buy-sell agreement. InsurChance explains how this works if you are a business partner.
Reasons You Don’t Need Life Insurance
You and your spouse have accumulated enough assets to independently care for yourselves.
Let’s say that Jack makes enough money to cover all the monthly expenses (including Jill’s). Let’s also say that Jill makes enough money to cover all the bills (including Jack’s). Assuming they have a savings account for funeral expenses and no children, this couple would not need life insurance. Most people buy life insurance to replace the income of a lost one, but since Jill doesn’t depend on Jack’s money to continue living her life then life insurance is not needed.
Your children are self-sufficient adults
Are your children grown adults and can care for themselves? Since you no longer have people that depend on your income, then you may forgo the life insurance. However, this is assuming that your have a spouse that can continue to live without our financial contribution AND assuming all of your debts are paid off.
If you have enough assets to leave behind for funeral costs and no one that depends on you
Here’s where the term policy works works best, because eventually we won’t all need life insurance. Let’s say you’ve got your emergency savings funded, you are completely debt free, you have 3-6 months of expenses in your fully funded emergency account, your kids’ college funds are complete, and you have invested enough for your partner to live on your investments until they retire. Then you, my friend, don’t need life insurance.
So, what do you think? Do you need life insurance?
If you do, then you’ll have to determine what type of insurance is best for you and your circumstance. Then, you’ll need to find out how much life insurance you should purchase.
I encourage you to take a look at Policy Genius to explore your options. You can use their tool to determine how much you need. Plus, you can chat with an advisor right on the site to help you with any questions that you may have.
Please remember, the sooner you buy, the cheaper the insurance will be. Don’t continue to put it off like I did. This is why it’s best to purchase life insurance in your 20s, right when big chances are happening like buying a home, getting married and starting a family.
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