Life insurance isn’t an exciting thing to consider. It reminds us we’re not invincible and one day we’ll pass away. Planning for end of life is not something we enjoy pondering. It may seem too painful, too far off or simply unnecessary.
Studies show many people avoid thinking about life insurance altogether. LIMRA reports that just 54% of Americans had some form of life insurance coverage as of 2017. If you’re in the camp of not having coverage, you may believe it’s fine to put off life insurance. Here are four reasons why most people will always need some type of life insurance.
1. Someone depends on you.
Do you have someone in your life who depends on you? This can be a spouse, partner, child, grandchild, grandparent or anyone who depends on you financially or physically. If so, life insurance is a necessity.
“Everyone who has someone who depends on them — and would be placed in a worse financial situation were they to die — almost always needs some form of life insurance,” says Joel Ohman, CFP®, MBA, MDiv, and CEO of Insurance Providers.
How can life insurance provide for those who depend on you after your passing? Below are a few of the ways life insurance can play a vital role in providing for dependents:
· Pay off a mortgage
· Provide a source of income for a stay-at-home parent
· Pay for child(ren) to go to college
· Pay off debt
· Provide for a child with special needs
This list only scratches the surface and varies depending on the specific needs of your family.
2. You’re single.
If you’re single, it’s easy to think life insurance isn’t a necessity — especially if no one depends on your income. But even if you’re single or a young adult, you probably need life insurance.
“If you’re single and you pass away, someone still has to pay for your funeral,” says Sa El, licensed life and health insurance agent and founder of Simply Insurance. The average funeral can cost anywhere from $5,000 to $10,000, or more, depending on the arrangements.
Do you have student loan debt or other forms of debt? An untimely passing can leave your loved ones on the hook for payment. Private student loans, for example, are often not discharged upon death. Life insurance proceeds can help repay those loans.
Putting off the decision to buy will likely only cost you more in the long run. Premiums are almost always cheaper the younger you are when you buy, so it makes sense to consider coverage as soon as possible.
3. Life is full of change.
That change can be positive, but at other times it brings increased responsibility to provide for loved ones. Having adequate life insurance coverage helps provide in those times.
“Just because you’re single or without dependents today doesn’t mean that will always be the case. Since you can add people to your policy as your life changes it’s always best to be covered,” El says.
Here are a few life changes that could cause you to need coverage, or increase the coverage you already have:
· Change of job
· Buying a new house
· Getting married or divorced
· Having a new child
Change is constant. Life insurance helps mitigate the cost of surprises from impacting your family.
4. It can supplement retirement income.
Retirement may seem like a time when you don’t need life insurance, but it can be one of the most necessary times to have it in place. Many people know about term life insurance. It provides protection for a certain term, and commonly nothing beyond that.
Other types of life insurance carry cash value. Whole life or universal life policies can provide cash value that can be used as retirement income, or work as a backup to your emergency fund.
Just know these plan types are often more intricate. “The options for life insurance are vast: from whole life insurance to universal life insurance to many variations and permutations of the above, some with market participation and investment exposure and others with a dizzying array of riders and features that will make your head spin. Be very wary about purchasing something that you don’t fully understand,” says Ohman.
Buying life insurance should always be done with due diligence, especially as you look at more involved policies. This doesn’t negate need for coverage — it simply points out the need to do your homework.
Is there ever a time it’s okay not to have coverage?
In most instances, the answer is no. The only time it’s a realistic question is if you’re independently wealthy, otherwise known as being self-insured.
“The only way to financially protect your family if you don’t have life insurance is to become financially free and then wealthy so if you pass away their financial situation doesn’t change,” El says. In other words, the only time you should ask the question is if the financial situation of your family won’t change upon your passing.
Few face this situation. Even in situations when someone is self-insured, life insurance can play an important role in estate planning in passing a tax-free benefit to survivors.
Life insurance isn’t a fun topic to consider. However, in most cases, we all need coverage — which makes it worth revisiting on a regular basis.