Who Needs Life Insurance?

Posted by Nehal Preet on January 5th, 2021

Not everyone needs life insurance. The general rule is that you only need life insurance in case you have dependents. Typically, dependents are children who still live at home or have yet to graduate from college. But a dependent could be anyone who is financially dependent on you, such as a spouse, sibling or an ageing parent.

Life insurance policy is generally designed for younger, working people with families. Here's why: Life insurance is meant to replace your "value" to your family once you're gone. For a working parent, a big part of that worth is your salary.

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If you die, you'll want your loved ones to receive enough money to displace your salary for at least the next five to seven yearsEven if you're a stay-at-home parent, you still have financial worth to your loved ones. Let's say you care for two small children. In the event that you die, then your spouse will need to keep working, which means the kids will need a nanny or day care. You might not need a huge life insurance policy, but you can buy a policy that fits the financial needs of your family.

Some people buy life insurance coverage policies when they get married, particularly if the insured person makes considerably more cash that the spouse, or if either the covered or the partner have additional financial dependents, like mother and father or siblings. Most people purchase life insurance when they get pregnant with their first child.

Once you've reached retirement age, there's less of a need for life insurance coverage. Now your kids are most likely financially independent and you're already living on retirement savings and investment income. One reason for an older person to keep a life insurance coverage is to provide extra money for his or her husband or wife to cover unexpected medical and long-term care expenses later in life.

Some older people hold onto life insurance policies as a way to pay for "end of existence" expenses like the cost of settling an estate. But the most basic reason behind retaining a life insurance policy later in living is also the oldest reason: to cover the cost of your funeral and burial.

Another reason to buy life insurance coverage to is to pay for a particular expense. If you buy a home, it's common to sign up for a 30-year mortgage. But what if you die in 10 years? There are unique life insurance policies that are tied directly to mortgages, decreasing in value as you continue to pay off the mortgage debt.

A less common reason to get life insurance has to do with business rather than family. Suppose you're a partner in a small business and the success of the business relies significantly on your ability to bring in clients and money. Some people buy life insurance coverage policies that name their business partner as the beneficiary. This chunk of cash could help the business stay afloat while they learn to get along without you.

So now you have a better idea of who requirements life insurance. But what type of life insurance coverage should you buy? Are they strictly for emergencies or can they also be reliable expense tools? We'll talk about all of the different types of life insurance policy in the next section.