Do I Need Life Insurance

The all important question: Do I Need Life Insurance is one of the more common questions that insurance agents receive.  Although most consumers would prefer a simple answer that applies to everyone, that simple answer does not exist.

First off, lets be perfectly honest about this inquiry:  When we say "Life Insurance" - in general we mean "Term Life Insurance" and not "Whole Life Insurance."   Although whole life insurance has certain people that could use the product, term insurance is far more useful to more people.  Therefore when answering the central question of this article: Do I need life Insurance, we are specifically asking: Do I need Term Life Insurance?

The way we will confront this question in this article is to first off define what the best uses of life insurances are and then to use detailed examples of people that may or may not need term insurance.

Our specialized life stages can be found below:​​

Insurance is a financial tool that allows you to offload risk.  Typically an insurance policy uses financial repayment if a certain set of circumstances happen.   In the case of life insurance - an insurance policy pays out a death benefit (financial dollar figure) if and when someone dies. There are restrictions to this. First off the policy death benefit amount are limited to the face value of the contract.  Term policies are also limited to the length of the term policy.  All insurance policies are also limited to the extent that the insurance policy has to be in good standing, in other words the policy premium must be paid.  The policy is typically limited within the first two years, during the so called incontestability period, when certain deaths such as suicide will not be paid out, or when specific material misrepresentations have been made. However after those initial two years this period ends.

So what is this financial tool?  Who Should Buy Life Insurance?

As discussed, this article is focused on the pure insurance question, not the so called investment component of life insurance.

Term life insurance is best used by people as a monetary benefit in the event of an unexpected and early death.

So Who Are these People?

The classic example of someone that is in need of a Term Life Insurance policy is someone that has children.  Children of any age that still financially depend on you.   Financially depending on you includes, but is not limited to: Living in your house, Driving your automobiles, Being listed on your health insurance, Going to college with your money, Eating your food, Drinking your breast milk, Depending on you to baby sit them, Expecting Christmas gifts from you, Being carried around by you in your womb.  As you can see this includes all aspects of the moment of conception until they are... fully or partially out of the house and potentially through college.

Another example of someone that is a great candidate are couples where one person works and the other spouse either does not work or does not make enough to support themselves. 

It is also popular for one spouse to use life insurance proceeds to pay off the mortgage in the event of death whereby one or the owners takes out and amount of insurance equal to or greater than the mortgage amount.

Term insurance can be useful for retired couples that rely on a pension.  That pension may cease making all payments or a portion of the payments if one of the two dies.

There are numerous other good uses of term life insurance contracts.

Do I Need Life Insurance When I am a Single Man with No Kids?

It depends.  The idea that you should have life insurance more than likely rests on if you are planning to have children and or get married. People that get married and that do not have children often can get away without having life insurance. However once you have children, almost certainly you will want a term policy.

One thing to keep in mind in this scenario is that if you are planning on having a family and getting married is that life insurance is generally far less expensive when you are younger and healthier. Therefore when you are in your late twenties you can get the policies for a relatively low amount.  This you will want to contrast against the negative of having to pay for it during years when you may not truly need it.

Do I Need Life Insurance When I am a Single Woman with No Kids?

This one depends as well.  As a single woman with no children and no husband you 'may' want to have a life insurance policy, but probably not for now. The real question is - do you plan on having children and do you plan on getting married?  If you are planning on having children than you more than likely will need a term life insurance policy.

As with the above similar scenario - the cost to procure a simple term life policy when you are younger and healthier is often dirt cheap.  Therefore in one sense it may make sense to consider buying it. The downside to this may be having the insurance during years of not needing it.

Do We Need Life Insurance as Newlyweds when we do not (yet) Have Kids?

Possibly Not, Probably, Yes.  There is not a simple answer to this one, so lets break it into various scenarios.

If both of you are planning on working and not having any children than the need for a term policy is pretty low.  In fact a simple answer of  You Do Not Need It, may suffice. One thing to keep in mind is that things change though. Given that you do not have children now, are you pretty certain that that may not change?  Are you certain that both of you will want to continue to work?

If you not planning on having children and only one of you will be working than you 'may' want to have a term policy to assist in paying off the mortgage or to give the other non working spouse a little extra help in the event of an unforeseen early death.  Although everyone focuses on term policies to pay off expenses, it is also useful for time.  In some instances it can allow the non working spouse breathing room before the are forced back into the workforce or to assist with job skills training.

Yes, if you are newlyweds and planning on having children you should BOTH go get a term life insurance policy.  In general it can make sense to shop for it before you get pregnant. This may not be your biggest priority right after you get married, but it should be an important goal.

Do I Need Life Insurance When I am a Single Mom?

Yes, you absolutely do need life insurance as a single mom.  Regardless of what any other spouses may do for their work or what commitments they have made.  Please make sure you have and maintain a term life insurance policy.  Regardless of any life insurance that the other parent may have - please make sure you have a simple term contract.

The single mom single dad scenario is probably the most obvious candidate for life insurance.

Do I Need Life Insurance When I am a Single Dad?

Yes, you absolutely do need life insurance as a single dad.  Forget about what the other spouse may do for a living and what they may committed to or promised you.  Get a simple term life insurance policy for your familie's   Even if the other spouse has their own term policy - you should have one as well.

Term life insurance is such a layup of a decision for single parents.  Yes get a term life policy.

Do I Need Life Insurance When I am a Working Mom and My Spouse Works Too?

Yes you need life insurance as the working spouse (mother or father) when both of you are working.  The following statement just cannot be made enough times: "Both spouses, working or not, need a term life policy when you have children"  Therefore the existence of employment does not really matter all to much for the need as both spouses need it.

Do I Need Life Insurance When I am a Working Dad and My Wife Does Not Work?

Yes, you need term life when you are the only one working Dad!  Actually your stay at home mom needs it too!  Some jobs come standard with life insurance as part of their employment and this is good news. However it is rarely enough coverage on its own.  Supplement it with your own term life insurance contract.

Do I Need Life Insurance When I am a Working Mom and My Husband Does Not Work?

Yep, you absolutely need a term life insurance policy when you work and your husband does not work. A simple calculation might suggest that you shoot for ten times your earnings for coverage amount.  One thing to keep in mind with all of the scenarios where one spouse works and other does not - is that both spouses need a term policy. Being that they are not working they probably will need a lower amount of face value coverage.

Do I Need Life Insurance as a Stay at Home Mom or Dad when my Spouse Works?

Yes you need life insurance when you are at home and your spouse works. Stay at home moms (and dads) do a real job in their home.  Although the job that they do may not end up with a paycheck it has real value.  Ask yourself a few simple questions to come up with potential coverage amounts:  How much would it cost to hire a full time nanny?  Possibly a driver?  Someone to do the laundry and run all of the errands?

One note with stay at home parents, often insurers will not wish to write the same value of life insurance on the non working spouse as the working spouse - therefore you may need to get the working dad or working mom their insurance first.

Do I Need Life Insurance When I am Retired?

Possibly, but not probably.  In general once you are retired hopefully all of your children are out of the house.  Hopefully your mortgage is paid down to some extent, leaving you in the situation of not needing much insurance.

There are three best use scenarios when having life insurance can make solid sense when you are retired:

(1) When you have a residual term life insurance policy from when you were working.

(2) When you have a small term policy to assist in paying off the remaining mortgage when your spouse or other is dependent on your pension.  

(3)  You have a well funded whole life insurance policy that is virtually on auto pilot and requires little premium input.

There are other scenarios, that are not as optimal.  These include those that are retired that do not have enough money to pay for their funeral and have a final expense type policy.

Do I Need Life Insurance When I am Wealthy?

No, Maybe, Yes.  There is no simple answer to this one.  I have included this question in this article because numerous people will read this and think - Hey we have enough saved to not need life insurance! Remember that this article is focused on should people by term life insurance for insurance purposes not whole life insurance for 'saving' or 'investment' purposes.

So should wealthy people consider term life?  Yes and here is why:  Life Insurance is Dirt Cheap for healthy people these days, in fact its probably never been cheaper.  Term life insurance is usually income tax free. Term life insurance allows the remaining spouse or family members to change their life and careers.  It allows them to move, it allows them to take charge of the remanent of the financial situation, it allows them to pay inheritance taxes and so on.  It could allow them to do something otherwise considered crazy in order to carry on with their life - perhaps moving to Greece and becoming a tour guide. Given its low cost relative to its potential upside - it is a personal financial deal, especially for those that have a high net worth.   The amount that you might consider probably would be low relative to your yearly income, perhaps rather than ten timers earnings, just two times earnings.

I recognize that many savvy personal financial experts suggest the elimination of insurances as your net worth grows.  However this is a better strategy for physical property coverages not liability coverages. Life Insurance in one way of thinking, is really liability coverage.  It can cover the liability of a loss of an income and partner. In other words ceasing the coverage on a $5,000 ring, in my opinion, makes far more sense than not covering a liability that you do not come home one day from a car accident.  I have seen numerous scenarios  where these two yearly insurance premiums are the same.

Not everyone needs life insurance.  Don't have or plan to have children or a spouse - you probably can do with out it.  Don't work and can't afford it - it may be a moot point.  However for many the ability to cheaply buy an inexpensive term life policy may be the simplest financial decision they can make.

We welcome questions and comments.