Understanding Who Has the Greatest Need for Life Insurance
- Knowing who has the greatest need for life insurance helps you determine your own insurance needs. Your personal needs affect how much life insurance you need.
Life insurance helps protect your loved ones from unexpected expenses after you pass away, but not everyone has the same life insurance needs. Understanding who has the greatest need for life insurance makes it easier to assess the different policies to figure out how much coverage you should maintain.
What Are Good Reasons for Buying Life Insurance?
The main reason to buy life insurance is to provide a source of funds when the covered person dies. Otherwise, surviving family members could be left with debt or overwhelming expenses. Some good reasons to buy life insurance include:
- To ensure that tuition expenses for children are covered
- To cover mortgage payments after your death for your spouse and children
- To pay for medical expenses incurred before death
- To cover funeral expenses
- To make up for the loss of income in a sole-earner or dual-earner household when one wage earner dies
Who Has the Greatest Need for Life Insurance?
In general, parents of young or college-age children have the greatest need for life insurance. This is because these families are responsible for significant expenses that the children cannot provide on their own. If a parent dies, the children could be left without the resources to support daily living or educational expenses.
People who are co-owners of a business may also have a high need for life insurance. In this case, insurance could help ensure that the business stays afloat if one of the partners or owners passes away.
What Are the Different Types of Life Insurance?
There are a few different types of life insurance, and people at different stages of life might be better served by a specific type. The two main policy types are term life insurance and whole life insurance.
Term life insurance is a policy that you pay into for a specific amount of time, and if you die during that time, the company pays your beneficiaries a specific amount. Once the term is over, any money paid into the plan is forfeit, so no one gets a payout after that point. More than 90% of term life insurance policies never pay out because the person does not die during the term.
Whole life insurance remains active your entire life, so as long as you are paying into the plan, your beneficiaries get the payout after you die. Whole life insurance is generally more expensive than term life insurance.
What Types of Life Insurance Are Best for Which Life Stages?
Families with young children might do best with whole life insurance because it provides the possibility of a payout far in the future. Even if the family's sole provider passes away long after the children are grown, the surviving spouse continues to have money to rely on for household expenses, and the adult children get financial support that their working parent might have otherwise provided at specific life milestones, such as help with marriage expenses or assistance with a first home down payment.
Term life insurance is best for single people who do not have to support someone else but don't want to leave parents or other family members with funeral expenses should they die unexpectedly. Individuals who carry large amounts of student loan debt or who have pets that would go to other family members after death may want to get a term life insurance policy to cover those costs as well.