When Do You Need Life Insurance?

by Ryan Guina

Have you considered how much life insurance you need?

This is a simple question without a one-size-fits-all answer. Before trying to answer that question, first consider why you need life insurance in the first place. Life insurance is there to replace your income if you die. It is there as a financial benefit for your survivors, or beneficiaries. But what if you are single and no one is financially dependent on your income – should you still buy life insurance? Do children need life insurance? Let’s look at a few situations.

Do You Need Life Insurance?

Who needs life insurance coverage?Not everyone needs life insurance. If you don’t have anyone financially dependent on your income, then you may not need it. Here are some rough guidelines, but keep in mind that there is no one-size-fits-all approach to life insurance.

When you NEED life insurance

Life insurance is there to replace your income if you die, so if you have anyone relying on your income, then you need life insurance. If any of the following situations apply to you, then you probably need life insurance:

  • You have dependents (children, spouse, partner, parents living with you, etc.)
  • You have a mortgage or other large debts
  • You have a large or complex estate
  • You own a business or have a partner in a business

Life insurance can be used as a tool for estate planning and can be useful for avoiding probate and/or taxes in certain situations. If you have a large or complex estate, then you should meet with a lawyer or estate planner to help you determine the best course of action.

When you may not need life insurance

You may not need life insurance if:

  • You have no financial dependents and probably will not in the foreseeable future
  • You are retired and living off investments or other income sources and your spouse or other dependents will have enough income from those sources if you pass before him/her
  • Children almost never need life insurance. The only time it makes sense to get life insurance on a child is if they are earning income and that income needs to be replaced if they die.

Note about children’s life insurance: Some life insurance companies will offer a rider on an adult’s policy that gives your child a few thousand dollars coverage, and depending on the company, may guarantee the child coverage after they turn age 18, regardless of their health. The life insurance company I use offered $20,000 coverage for my daughter for an additional $2 per month on my life insurance policy, and the guarantee she would be eligible for coverage after age 18, regardless of health. Use your own judgment on this type of plan.

No dependents, no life insurance?

Here is a common situation: You are young and single, or you are a newly married couple where both spouses work (dual income, no kids). Do you need life insurance?

There are two sides to this argument – some say, yes, buy life insurance regardless of whether or not anyone is financially dependent upon your income, and others who will say not to bother. As with everything, there are different ways to look at this.

If you are young you can usually buy a term life insurance policy cheaper now than you can a few years down the road. The benefit of this is you can lock in lower life insurance rates, and you will already have coverage in place if something were to happen that would leave you uninsurable. (See why term life insurance is almost always better than whole life insurance).

Automatic/inexpensive group life insurance through work. My current company offers life insurance as part of our benefits, with a policy payout of 2x annual salary (we can purchase more at our expense). When I was in my early twenties I had a $10,000 policy through the military (SGLI), which was enough to pay for any incidental burial costs my family might have faced (I was in the USAF at the time, so I would have had a free military burial; the $10k policy was “just in case” and only cost $0.80 per month). I didn’t see the need in getting a larger policy because I was single and had no dependents.

What are your thoughts about who needs life insurance?

Published or updated July 6, 2012.
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{ 5 comments… read them below or add one }

1 Jenna

Thanks for posting this information. Currently I’m in the “don’t need life insurance” group, but it is a good thing to recognize what life events might be in my future to make me switch groups.


2 ctreit

I am with you on most of these points especially on life insurance for kids. When I wrote a post about life insurance for kids in a previous blog I was running, I got a bunch of nasty comments. Like you, I argued that life insurance is supposed to replace income. That’s it. – I would like to add that you also want to take assets into account when you decide whether you need life insurance and how much coverage you need. If you have sufficient assets that allow your loved ones to survive even if they lose you income, you can skip life insurance entirely.


3 Ryan

very true on all points. I know a few people who have passed the point of needing life insurance. When you get up in years it almost becomes prohibitively expensive. I hope to have enough money to no longer need life insurance when my current 30 year policy runs out.


4 pamela

As always I feel there are exceptions to rules. My parents did one of those kid things when I was in school. I took it over when I got older for one main reason. One My parents were in debt up to their eyeballs..if something happened to me and they had to pay for a funeral I didn’t want to have added to that debt!! They literally had NO savings so that $10,000 would have been used to pay for my funeral with a little left over. And I think that is a good thing.


5 Jody Allison

I disagree about the insurance for children, as I have witnessed the devastating effect that the loss of a child has on a family. Funds to take the time to grieve would have been very helpful, because while the pain of the loss never goes away, not having to return to work immediately can certainly reduce the related stress.


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