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7 Life Events That Affect Your Life Insurance Needs

Fact-checked with HomeInsurance.com

September is Life Insurance Awareness Month, a perfect time to consider who benefits from life insurance, and when you should buy it. Life is unpredictable—we never know what happy or tragic events may be around the corner. That’s why life insurance was created. 

A life policy is a contract with an insurance company that gives a beneficiary a payment, known as a death benefit, when the insured person dies. Some policy types also accumulate a cash value through investments. Having life coverage gives you and your loved ones peace of mind that your finances won’t suffer after an unexpected tragedy.

As your life changes, your insurance needs change too. Here are seven life events that should prompt you to reevaluate your life insurance coverage.

1. Getting married or becoming a couple.

When couples get married or become life partners, it’s likely that both work and contribute an income to the household. If one person dies, the other could get saddled with many financial obligations.

Proceeds from a life insurance policy would help the survivor maintain their lifestyle by paying for bills and debts, such as a mortgage, car loan, student loans and credit cards. A policy death benefit can be spent any way the beneficiary likes.

2. Having or adopting a child.

Welcoming a new child into your family is a joyous occasion—but becoming a parent is also expensive. According to the U.S. Department of Agriculture, the typical American family spends more than $233,000 raising a child from birth to age 18.

Every parent of a dependent child should have life insurance to protect them. If you died with a surviving spouse or partner, they could use the proceeds to pay for a child’s education or other expenses. And if you’re a single parent, life insurance would be an essential financial lifeline for a child after your death. 

3. Becoming a stay-at-home parent.

Don’t make the mistake of assuming that only primary breadwinners in a family need life insurance. Not only is being a stay-at-home parent one of the most demanding jobs in the world, but the cost of replacing that work is high. 

According to Salary.com, outsourcing the work done by a typical stay-at-home mom would cost more than $162,000 per year. Be sure you have enough life insurance to pay for childcare and household help if a stay-at-home parent were no longer around.

4. Getting divorced or spitting up.

If you end a marriage or partnership, it can be an emotional time. You’ll need to reevaluate your existing life insurance before a divorce gets finalized. Consider answers to the following questions:

  • Should I buy my own life insurance or have additional coverage?
  • Who will pay premiums for an existing life insurance policy?
  • Do I need to change my life insurance policy beneficiary?

If your life insurance lists an ex-spouse or previous partner as a beneficiary, they will receive the benefit when you die—even if you exclude them from your last will. So, don’t forget to review your beneficiary choices after going through a breakup.

5. Starting a new job.

Many employers offer low-cost or free life insurance in their group benefits package. However, typical employer-sponsored life insurance is only one or two times your annual salary. That may not be enough if you support a family. Additionally, workplace policies are job dependent, so if you leave your job, coverage ends.

A good rule of thumb is to have life coverage at least five to ten times your annual income. However, this amount may vary depending on your financial situation and family needs. 

You can purchase an additional life policy on your own, or you may have the option to buy supplemental life through your employer. Having an individual life policy makes sure you’d never have a coverage gap if you lost your job. 

6. Becoming self-employed. 

When you’re self-employed, you must provide your own benefits package, so don’t forget to purchase life insurance to protect those who depend on you. 

If you have one or more business partners, you may also need “key man” coverage to protect your business from a partner’s death. The proceeds could be used to replace lost income or pay business expenses, including debt and taxes.

7. Retiring.

As your retirement draws near, it’s smart to reevaluate your life insurance and consult with a financial advisor. If you have a permanent life policy with a cash value, it may be a retirement income source that you’re ready to tap.

Depending on your situation, having a life policy may help your heirs pay taxes and legal fees associated with your estate. Or if you have grown children and a surviving spouse or partner with enough of their own income, you may no longer need a life policy.

What factors determine life insurance rates?

The cost of a life policy depends on a variety of factors, including your:

  • Age
  • Health
  • Smoking status
  • Credit
  • Driving record
  • Occupation
  • Hobbies

Shopping for a policy when you’re young and likely to be in good health can help you save money. Underwriting guidelines vary from insurer to insurer, so it’s wise to get multiple quotes and compare rates for similar policies.

Thinking about death and what would happen to your family if you weren’t alive is difficult. The takeaway is that if your surviving spouse, partner, children, parents, other dependents or business partners would be hurt financially after your death, you need life insurance to protect them. Your life insurance policy can be a crucial part of the legacy you want to leave.

Laura Adams

Laura is a frequent media source and has been featured on most major news outlets including ABC, Bloomberg, CBS, FOX, NBC, NPR, The New York Times, The Wall Street Journal, The Washington Post, USA Today, U.S. News, Consumer Reports, Entrepreneur, Forbes, Fortune, Kiplinger’s, Marketplace, Money, MSN, and many other broadcast, print, and online outlets. Laura’s mission is to empower consumers to live richer lives through her writing, podcasting, spokesperson, and advocacy work. Millions of readers and listeners benefit from her practical financial advice. Laura earned an MBA from the University of Florida. She and her husband reside in Vero Beach, Florida. Connect with her and learn more at LauraDAdams.com.

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