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Life insurance is an important and extremely valuable product that helps many families find stability after the loss of a loved one. That being said, does everyone need life insurance? No, life insurance is not a necessity for every individual.

As a general guideline, if anyone in your life would be negatively affected financially by your death, then you need life insurance.

Who Needs Life Insurance?

All of the following types of individuals may have a need for life insurance:

  • Parents
  • Spouses/Partners
  • Business Owners
  • People with Shared Debt
  • Retirees
  • High Net Worth

Parents

Providing for your children is your number one job. If they’re young, they are unable to provide for themselves. Your income pays for the things they need to live and enjoy life.

If you died unexpectedly, your family would undoubtedly suffer emotionally. They don’t need to suffer financially, too.

Term life insurance is perfect for families. It’s designed to provide protection during the most vulnerable years of your loved ones’ lives and then terminate when you no longer need it.

Spouses/Partners

If you’re building a life with someone, that person relies on you and your income to provide a standard of living.

The rent/mortgage payments, utility bills, everyday expenses, and even retirement are provided for together. If your income suddenly disappeared, would your partner struggle?

Term is ideal to protect each other during your growing years.

Business Owners

A small business owner likely not only has loved ones relying on them, but business partners, employees, and clients as well.

Life insurance can be used in multiple ways for a business owner. Whether it’s income replacement for their family, key person insurance on an employee, funding a buy-sell agreement, or used as collateral for a loan, life insurance is essential for a small business owner.

People with Shared Debts

If you’re married, you likely share debts with your spouse. But there are others to think of as well.

Co-signers on a loan, joint owners or account holders, and spouses in community property states all may be responsible for your debt if you die and not even realize it until they get a bill.

Life insurance can protect people who may inherit your debt.

Retired People

As retirees, you likely do not have any dependents, but having life insurance will ensure that your loved ones are not financially burdened if you passed away. Life insurance protects your family members from having to pay medical expenses, funeral costs, and any outstanding debt.

Life insurance can also benefit your surviving spouse. If your death would cause your spouse to lose pension benefits or Social Security income, life insurance can bridge that gap so your spouse’s standard of living goes unchanged.

Depending upon the size of your estate, you may be hit with estate taxes after your death. Life insurance can help cover taxes, fees, and other estate related debts, so your loved ones will not have to sell off valuable assets to cover these costs.

People Who May Owe Estate Taxes

If your estate is large enough, your heirs may be dealing with estate taxes when you die. For 2022, the federal estate tax kicks in if you leave behind assets totaling more than $12.06 million. In addition, each state has its own estate tax on top of the federal.

Permanent life insurance is more ideal than term life insurance if your estate is greater than the exemption limit. Permanent life insurance can ensure your loved ones receive an inheritance rather than debt eating away at the estate assets.

See what you’d pay for life insurance

Comparison shop prices on custom coverage amounts from the nation’s top carriers with Quotacy.

Funeral and Burial Expenses

When considering life insurance, don’t forget about the cost of a funeral. Depending on your wishes, the average funeral costs between $7,000 and $12,000. Will this amount be a financial burden on someone you love? Don’t forget to figure in funeral and burial costs when applying for life insurance.

» Calculate: Life insurance needs calculator

Who doesn’t need life insurance?

If no one relies on you financially and if you have no debt that would become someone else’s responsibility, then it may not be necessary. You may find that it makes more sense to invest in stocks, bonds, savings and retirement accounts.

Keep in mind, however, that the cost of buying a policy only increases as you age. So, if you believe you may need life insurance in the future, it may be prudent to purchase sooner rather than later.

What are the different kinds of life insurance?

Term Life Insurance

Term life insurance is the most affordable life insurance option for families. The coverage lasts a specific period of time, called a term. These terms range from 5 to 40 years, availability depending on your age.

If the insured person dies within that term, the life insurance company pays the coverage amount (the death benefit) to the beneficiaries of the policy. Even if you die one day after the policy is activated, the life insurance company still pays the FULL death benefit. However, the insurance company is allowed to investigate the claim if the insured dies within the first two years of policy activation.

Permanent Life Insurance

Permanent life insurance contains many different policy options. The most common are whole life insurance, universal life insurance, and guaranteed life insurance.

All permanent life insurance policies are designed to last until you die. Depending on the type of permanent policy, there also may be a cash value accumulation component and it may pay dividends. Because of the extra beneficial features of permanent life insurance, it’s often 10-20 times more expensive than a term life insurance policy with the same coverage amount.

Employer-Sponsored Life Insurance

You may have life insurance as part of a benefits package through your job. This group life insurance is likely term life insurance, accidental death and dismemberment life insurance, or a mix of both.

Group term life insurance typically caps at $50,000 and it’s not yours to take with you if you leave the company. Your employer may pay the premiums on this coverage—so it’s a nice benefit—but if you have a family, it’s important to buy your own individual term life insurance in addition.

Accidental death and dismemberment insurance (also known as AD&D) is another common form of employer-sponsored life insurance. This type of coverage pays a death benefit if the insured dies as a result of an accident only. For example, it would pay out for death resulting from falling off a ladder, but not cancer. It also pays out a portion of the benefit if the insured is dismembered in an accident. For example, if the insured lost a foot in a boating accident the policy pays out a certain percentage of the benefit, like 50%.

Reasons for Owning Life Insurance

Each of the different types of people described above have a need for life insurance. Life insurance was created mainly to be used as income replacement, but the product provides other benefits as well.

Life insurance can help:

  • cover burial and other final expenses
  • pay off the mortgage
  • transfer wealth or leave an inheritance
  • pay for home care expenses
  • supplement retirement income
  • pay for estate taxes or create estate liquidity
  • provide college fund for children
  • business strategies
  • a charity

After reading about the different types of people who need life insurance and reasons as to why people purchase it, is life insurance something that could benefit you? If you answered yes, get a term life insurance quote to see how little it may cost to get coverage. Unlike many online life insurance quoting engines, we don’t ask for any personal information upfront.

Term life insurance is simple, affordable, and customizable. Quotacy searches across the nation’s top insurance carriers to find the plan that fits your needs, time frame, and budget, and we will be there for you every step of the way ensuring the process is as smooth as possible. Apply for life insurance today.

About the writer

Headshot of Natasha Cornelius, a life insurance writer, for Quotacy, Inc.

Natasha Cornelius, CLU

Senior Editor and Life Insurance Expert

Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.