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Who needs life insurance?

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Most people are familiar with life insurance, but not all actually have a policy. As of 2018, the Insurance Information Institute indicates only about 60% of people in the United States had some type of life insurance coverage. It’s often assumed that you only need life insurance when you get older, or that it’s “nice to have,” but not a must-have. In this article, we will explore who needs life insurance, clear up any misconceptions about life insurance and explain how to determine the amount of coverage you should get.

Head of the household or primary earner

The head of the household or primary breadwinner is the first person who should consider life insurance. Without your income, your family members would likely struggle financially, or be forced to change their lifestyle significantly.

For the primary income earner, having a term life insurance policy is beneficial. If you were to pass away, it would provide income for your family members to live on, without having to drastically change their lifestyle. When you reach retirement, you could even turn your term policy into a permanent life insurance policy, which would cover you and your family for the rest of your lifetime.

Young adults

If you are in your 20s or 30s, you may think you are too young to need life insurance. While it’s true that younger, healthy people with no dependents are in the least need of life insurance, there are certain instances when having life insurance is beneficial.

For instance, if you have student loans that you co-signed with a parent, they become responsible for your debt if you were to pass away. Having a term life insurance policy would give your parents money to repay the loan without dipping into their savings. You may also prefer to secure a life insurance policy when the rate is likely to be lowest based on age and health.

Single parents

If you’re a single parent, having life insurance is extremely important — particularly if you are paying child support. If you were to unexpectedly pass away, your ex-spouse would no longer receive your child support payments. Depending on their financial situation, the lack of financial support could negatively impact the child/children’s quality of life.

With a life insurance policy, your ex-spouse would be able to use the payout to care for your child in the event of your death. A term life insurance policy is suitable for most single parents, whether or not child support is involved. After the term is up and your child is an adult, you could roll your policy into a permanent policy for lifetime coverage. 

Homeowners

Homeowners who have an active mortgage can benefit from having a life insurance policy. If you were to pass away and your family members couldn’t afford the mortgage, they would likely be in a bind. With a life insurance policy, your family could use the money to continue paying the mortgage so they could keep the home.

One strategy is to purchase a term life insurance policy that matches the term of the mortgage when you buy a house. After the term is up and the mortgage is paid off, you can roll over the policy into permanent coverage for you and your family to have for the rest of your life. 

Seniors

As a senior, having a permanent life insurance policy can provide extra income during retirement and help your family members pay off your debts after you pass, like a mortgage or credit card bills. Many seniors also use their life insurance to financially prepare for final expenses, such as funeral costs.

Keep in mind that most life insurance companies have an age cap for buying life insurance, which is usually around 75. Older people also need to be able to pass a medical exam in order to get approved for coverage. 

High-income individuals

Some life insurance policies can be used as an investment vehicle, which can be ideal for some high-income individuals. If you’re looking to grow your money and be able to support your family members after your death, a whole or universal life insurance policy could be a good option.

Also consider that a life insurance policy can help you leave money to heirs after your death. If your life insurance policy is worth enough, it can also help your heirs and beneficiaries pay for estate and inheritance taxes.

How much life insurance do you need?

Every individual has a different financial situation, and therefore, everyone’s life insurance needs are different. The amount of life insurance coverage you need should be based on your current financial circumstances and future needs.

Consider your lifestyle, and how much money your family members would need to live comfortably if you were to pass away unexpectedly. Make sure to factor in recurring expenses, like mortgage payments or your kids’ school tuition, in addition to other debts. You should have enough life insurance coverage to support your family members based on their current lifestyle, or at least enough to cover outstanding debts and final expenses.

On the other hand, an older person with few living family members and virtually no outstanding debts could probably get away with less coverage. Some seniors choose to purchase a specific type of life insurance that only covers end-of-life expenses. You can even name a funeral home as your life insurance beneficiary to directly cover the cost of a funeral or cremation services.

The takeaway

  • Almost everyone can benefit from some type of life insurance, even from a young age.
  • The amount of life insurance you need should be based on your current financial situation, your lifestyle, and your outstanding debts.

No matter what your unique circumstances, almost everyone can benefit from life insurance when they become an adult. If you are the sole breadwinner of your household, or you have health issues that could shorten your lifespan, it’s even more important to have life insurance. Whatever your current financial situation is, there is a life insurance policy that can fit your needs and protect the best interests of your loved ones.

Elizabeth Rivelli

Elizabeth is an insurance writer for coverage.com, where she covers insurance providers and reviews policies to help consumers find comprehensive and affordable coverage for every area of their life. She has more than three years of writing experience for top online insurance and finance publications.

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