Who Needs Life Insurance? You Do!

Find out the 7 situations that require life insurance, plus where to get it so you don’t get caught uninsured.

Laura Adams, MBA
5-minute read
Episode #285

Who Needs Life Insurance? You Do!

If you think life insurance is only for wealthy people or single parents, you’re in for a big surprise. In today’s episode you’ll learn 7 situations that beg for life insurance—plus, how much you need and the best places get affordable quotes.

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It’s Life Insurance Awareness Month!

September is Life Insurance Awareness Month, which makes it the perfect time to consider how life insurance can be the key to reaching your goals and achieving financial security.

The spokesperson for the 2012 awareness campaign is master baker and reality TV star Buddy Valastro, known as the Cake Boss. From a young age, he dreamed of working alongside his father in the family bakery, but his dad died when he was 17. Buddy had to drop out of high school to run the business and oversee 30 employees. He says things could have been a lot easier if his dad had owned life insurance.

Research shows that about 70% of Americans understand the value of life insurance and how it can give them peace of mind. However, about 30% of U.S. households, or 35 million people, don’t have it. And about 50% of those who do have life insurance say they don’t have enough.

Who Needs Life Insurance?

Life insurance is so important because it protects people who depend on you financially, if you die. It pays one or more beneficiaries as soon as you pass away so they can pay expenses and replace your lost income. 

One of the top reasons people who need life insurance don’t buy it is because they think they can’t afford it. But here’s the rub: studies find that consumers actually overestimate how much they believe life insurance costs—by as much as three times!

Did you know that if you’re in your 30s or 40s, you can get a 10-year, term life policy that pays $500,000 for around $20 to $25 per month? In my book, that’s a bargain!

Here are 7 situations which should trigger you to buy life insurance:

Situation #1: You’re the Breadwinner

If you’re the only person earning money to support your household, you need life insurance. Think about what would happen to your spouse or children if you weren’t alive. Would there be enough to pay for ongoing expenses like a mortgage, rent, or daycare?

Situation #2: You Anticipate Funeral Costs

It’s hard to believe, but a traditional funeral that includes a burial can cost over $10,000. Consider what kind of funeral you want and whether your family could afford it if you didn’t have life insurance.

You can learn more about how to calculate funeral costs and the decisions that grieving family members and friends have to make if you don’t pre-plan arrangements, in the Funeral Consumer Guide on the Federal Trade Commission web site.

Situation #3: You Have Debt

If you have debt in your name only, no one is responsible to pay it except you—even after you die. The money in your estate must be used to settle your debts, and if there isn’t enough, creditors are generally out of luck.

But if you have debt with another person—such as a credit card or loan that you co-signed—that’s another story. Anyone named on a joint account with you would be responsible for 100% of the debt if you die. So having life insurance to cover outstanding debt on joint accounts is very important.

Also, if you’re married and live in one of the 9 community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), your spouse may still be responsible to pay debt acquired during your marriage, even if it’s in your name only.

Related Content: What Happens to Debt When You Die?

Situation #4: You Want to Pay for Education

The cost of higher education rises every year and few students can make it through college without going into debt. If you want to pay for a child’s private school or college education, life insurance is a surefire way to make sure it can happen even if you’re not alive.

Situation #5: You Intend to Give Equally

If you have multiple heirs, leaving them assets instead of cash can get complicated. For instance, if 2 children inherit a house that’s paid for, one might want to keep it as a vacation home, but the other might need to sell it because they can’t afford the annual taxes and insurance.

On the other hand, a life insurance payout is an easy way to make sure that you distribute cash directly to your heirs or to a charity in the proportion you specify.

Situation #6: You Expect Estate Taxes and Fees

If you have a large estate, there will be taxes, as well as legal and administrative fees that must be paid. Sometimes heirs are forced to sell estate assets in order to afford these charges.

You can use life insurance as an estate planning tool to fund your estate’s liability and make sure your heirs receive exactly what you want.

Situation #7: You Have a Special-Needs Child

If you have a child with special needs, you may need permanent life insurance. This is a type of coverage that insures you no matter when you die, and it has a savings component in addition to a death benefit.

Related Content: Should You Buy Permanent or Term Life Insurance?

How to Get Life Insurance

If you already have life insurance, review your coverage at least every few years, or whenever you have a major change in income, expenses, or family status. To calculate the amount of coverage that’s right for you, consider the following:

  • How much income your survivors would need each year, times the number of years they’d need it.

  • What expenses your survivors would have to pay, such as funeral costs or outstanding debt.

  • The assets you already own, such as bank accounts and retirement savings that could be used to cover expenses.

Compare life insurance rates from top insurers by shopping online at sites like the following:

Remember that life insurance isn’t a luxury—it’s a necessity that’s truly affordable for the vast majority of consumers who need it.

More Articles and Resources You Might Like:

Life Insurance Basics

Life Insurance Needs Calculator

What Kind of Insurance Do You Need?

When Should You Change a Will?

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.