If you’re in your 30s, you’ve likely had someone -- a friend, a person you met at a networking event, someone who cold called you out of the blue -- try to sell you on life insurance.
They may use scare tactics to try and convince you to buy a policy, or they might have some arguments that make having life insurance seem like a responsible financial thing to do (which it may be!).
But how much insurance do you really need? And what if you don’t need it at all?
Let’s take a quick look to better understand life insurance, the real purpose of it, and whether or not you actually need it.
The Purpose of a Life Insurance Policy
Life insurance offers financial protection against you passing away early. If you were to die tomorrow, think about who would be financially impacted: your spouse, your children, and potentially other family members who may depend on some or all of your income.
Just like car insurance protects you against the financial liabilities that come with an accident and homeowners insurance against the pitfalls of owning a home, life insurance is a product that protects people who would suffer if your financial support suddenly went away.
What life insurance is not is an investment. (You wouldn’t call your car insurance an “investment,” would you? It’s similar with life insurance: it’s a product designed to do a specific job.) And, like with any policy, it’s something you might want to have… but hope you never have to actually use.
So how do you determine if it’s something you absolutely want to have? There are a few times when your need will be obvious.
The Obvious Case for Life Insurance
Even if you’ve considered it before, getting an insurance policy -- beyond the one you might have as part of your benefits package through your employer -- is probably low on your priority list.
After all, life is busy and you have other things to deal with. Dying suddenly at a young age seems so unlikely; it’s easy to think that someone like you doesn’t need something like life insurance.
But if you have a young family or support your household financially in any way… you probably do need some coverage. Why? Consider what you’re insuring when you buy life insurance: you are making sure that the beneficiary of your policy would not face some kind of hardship if you were to pass away and no longer financially provided for them.
Knowing that this is the purpose of life insurance, it’s obvious that you need a policy if you have children. Minors under 18 certainly depend on your income, but even young adults who might be in college or looking to get on their own two feet that you still support might need to be beneficiaries on your insurance.
You may also want life insurance if you have a spouse or significant other. The death benefit can cover large liabilities like your mortgage, charitable donations, and general living expenses during a grieving period when life for the surviving spouse needs to be figured out.
Single with No Dependents? You Might Not Need a Policy
A good rule of thumb for life insurance is that if someone would struggle to get by in any kind of way if you (and your income) disappeared tomorrow, it’s time to consider getting a policy to protect that person (or people).
But what if you’re single, you have no dependents, and you don’t have any debts or liabilities that would pass on to anyone else should you pass away?
In these cases, you might not need life insurance because there’s no financial hardship to insure against.
One Big Exception to the General Rule: Non-Working Spouses
There is somewhat of an exception here, though, and most people forget to consider it. Let’s say you’re married, but don’t work. Your spouse provides the household income. In this case, it’s obvious that your spouse would need a policy so that you would not face a financial hardship if they were to die.
But what about you? Do you need life insurance if you don’t work or earn an income?
Yes! Here’s why: the cost associated with replacing the care and work you provide in your household or to your children is huge. What would it cost to have a full-nanny replace your role as stay-at-home-parent? What about daycare, housekeeping, personal chef services, and so on?
Your working spouse would certainly face a hardship if something happened to you, and would need to replace your labor in some way. Even if you don’t earn a paycheck from an employer, you need life insurance so your spouse could use the death benefit to keep up with the additional expenses they’d likely face without you.
What to Do Next?
Once you evaluate your need for life insurance, you need to determine what kind of policy to get. (And of course, if you don’t need life insurance -- you may be all set in this arena and don’t need to include this in your financial planning.)
Most people need term life insurance, not whole life or permanent life insurance. Term life insurance covers you for a set period of time, and you don’t have to pay premiums once that term expires. With whole or permanent life, on the other hand, you always pay premiums.
Look for a product from an independent insurance provider like LLIS. There are other independent companies out there, too, and you should feel free to work with one you feel msot comfortable with. What you want to avoid are “captive” agencies, which only sell their own products. These include brands like Allstate, State Farm, and New York Life.
An independent provider can look at the entire marketplace and help you get the best deal, so that’s why you want to start your search with them. A good step to take is to request quotes and start comparing potential options to find the best one for you.