It’s easy to understand when you should buy some insurance products. Own or lease a vehicle? Better have car insurance. Buying a house? You’re going to need homeowners insurance. But life insurance? When do you need life insurance?
Since a life insurance policy can provide financial peace of mind for those closest to you, people often consider life insurance options when their thinking goes from “me” to “we.” That can be when you get married and have a spouse who relies on your income, when you have children, or even when you have cosigned debts that might be left to someone else to pay off if you were to die. Most people will fall into one or all of these scenarios at some point in life.
Bottom line: While individual life insurance needs depend on your budget, dependents, and how much your loved ones would need if you were to die, there is usually no “wrong” life stage for life insurance.
Determining if you need life insurance
The simplest way to understand whether you need life insurance is to take a look at your current family structure and responsibilities. While coverage needs aren’t one size fits all, doing this can give you a better understanding of which life situations would benefit from having a policy in place.
If you’re single, with little to no debts or shared expenses, then you likely don’t need life insurance. Most people need coverage when someone would be financially impacted by their death.
That said, if you’re in your 20s and don’t have emergency savings, you may want to consider your family’s financial ability to afford a funeral or burial expenses. Life insurance at its core is a way to leave a financial legacy for your loved ones — a 20-year, $100,000 policy (costing a healthy 25-year-old woman about $10 per month) could be a monetary safety net until you have more assets.
More than 50% of respondents in a 2018 Haven Life research study said they would experience financial hardship if their spouse passed away. That’s because with marriage comes shared financial responsibilities. Could your partner cover the mortgage or rent, pay cosigned debts or cover a funeral and final expenses on his or her own? If the answer is no, then purchasing a life insurance policy might be the right thing to do.
Fortunately, coverage is more affordable the younger and healthier you are, so if you’re a young and healthy couple, you can probably get a 30-year, $500,000 policy for less than a few lattes per month. The peace of mind that comes with knowing you’ll both be taken care of is worth it.
You own a home
For many people, the home is one of their largest assets. Once you own a home, it’s important to consider what would happen to that house if you died. Could your partner afford to pay the mortgage? Or, do you want to leave the home to a loved one? Whatever your plans are for your house, you’ll want to make sure that you have at least enough life insurance coverage to pay for the remaining mortgage balance on the home. Your beneficiary should be whomever the house will be left to.
You’re a parent
About 9,000 children are born to Millennial parents every day. Becoming a parent is one of the most rewarding and important milestones we’ll ever reach in our lives. And it’s a time that has substantial financial impacts.
A life insurance policy when you have kids can help your spouse cover day-to-day living expenses, pay significant debts, cover childcare or send the kids to college. In the worst case scenario, the proceeds of a life insurance policy help make sure your children are financially cared for if both parents were no longer around.
You’re the breadwinner
If your household relies on your income for their financial well being, then you need life insurance. Unfortunately, most of us have heard the heartbreaking stories of a family losing a mother or father and not only struggling emotionally but also financially. Most experts recommend having a policy that’s 5 to 10 times your annual salary. If you are the breadwinner that supports a spouse and children, use a life insurance calculator to help determine the right amount of coverage to protect your loved ones.
For example, the calculator recommends a 30-year, $2,350,000 term life insurance policy for a 33-year-old male who is in excellent health, earns $200,000 per year, has a non-working spouse and two children, and a $300,000 mortgage debt. The estimated rate for this policy is between $150.15 and $317.30 per month.
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You’re a stay-at-home parent
It’s a common misconception that only the salary-earning spouse needs life insurance. The reality is that the contributions of a stay-at-home parent are worth $143,102, according to salary.com.
Regardless of the income of one spouse, usually both spouses need life insurance, and that includes stay-at-home parents. Consider the cost of child care, housekeeping, meal preparation, and shopping, along with all of the many other responsibilities of the stay-at-home parent.
Is life insurance through work adequate?
Do you need life insurance if you already have life insurance through work? The answer to that question may be probably. That’s because group life insurance policies through work may not be sufficient coverage for what you need. For example, many group life insurance policies are capped at one or two times your annual income, which may not be enough to help cover, say, a mortgage or financially caring for children. Also, the potential downside of relying exclusively on a group policy is that the coverage usually terminates if you separate from your employer. Buying an individual policy guarantees that your coverage will last for the term of your policy, as long as the premium is paid.
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When should you get life insurance?
Rates for a term life insurance policy varies, but age and health are two huge factors influencing the rate of a term life insurance policy. That’s why it may be a good idea to buy a life insurance policy when you’re young and healthy. For example, a 30-year-old male nonsmoker in excellent health can purchase a 30-year, $500,000 policy for about $36 per month. By age 35, with all the same factors in place, that same individual may have to pay $42 per month.
Because a level term life insurance policy locks a rate into place for the duration of the term, that means that the person who purchases a term policy at 25 will be paying the same rate even past the age of 50 (on a 30-year policy), no matter what his or her health may look like then.
Even though a life insurance premium may not be expensive, it is a monthly bill that must be paid to maintain coverage. So for some people, it may not make sense to add that bill to their monthly budget until they have financial obligations, like a mortgage, or dependents like kids or aging parents.
To make sure you have the right amount of coverage, it’s best to use an online life insurance calculator to help you out.
Buying life insurance is easier than ever
Whether you feel you need life insurance now or are pretty sure you may need life insurance down the line, the process to buy life insurance has never been simpler. Online options allow you to fill out an application on your phone or tablet, as well as allowing the opportunity to get instant rate estimates for price comparison. Familiarizing yourself with different life insurance options, rates, and coverage can help you suss out the best option for you — and can help you get covered fast so you can go on and enjoy your life.
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Anna Davies is an editor at Haven Life. She has written for The New York Times, New York Magazine, Refinery29, Glamour, Elle, and others, and has published 13 young adult novels. She lives in Jersey City, NJ, with her family and loves traveling, running, and trying to find the best cold brew coffee in town.