Life insurance ensures your family is protected financially if you die.
According to a study conducted by LIMRA, 42% of American households would struggle financially if a wage earner died unexpectedly. [1]
And a recent Policygenius survey found that 49% of the sandwich generation (people with a parent age 65 or older who also are raising children or supporting adult children) doesn’t have life insurance to help financially support their loved ones after they die.
Do you need life insurance?
If you’re unsure if you need life insurance, the simplest question to ask yourself is: Does anyone in my life benefit from or need my financial support?
If your answer is yes — whether it’s your children, your spouse, an aging parent, a business partner, or even the co-signer of a loan — then you probably need life insurance.
Learn more about the history of life insurance
Why do you need life insurance?
A life insurance policy works so that if you die while the policy is active, your beneficiaries will get a lump sum of money, tax-free.
Your beneficiaries will be able to use the death benefit for whatever they need. Common uses include:
End-of-life expenses: Including funeral and medical bills
Outstanding debts: Including mortgages, credit card debt, private student loans, and car loans
Childcare and other child-rearing expenses: Including camp tuition, sports fees, and other expenses
College tuition: Including room and board
Time: Including time to grieve or to move without having to worry about work
Who needs life insurance?
If people depend on your income, then it’s very likely that you need life insurance. Some common categories of people who need life insurance include:
Parents and future parents. If you’re a parent or plan to have children, your children will be financially dependent on you while they grow up. A life insurance policy can help cover the costs of childcare if you died prematurely.
Spouses. If you’re married, you typically share financial responsibilities with your spouse. Life insurance ensures that if one spouse dies, the other can continue living the lifestyle they had worked for together.
Students with co-signed student loans. Although federal student loans are forgiven if the borrower dies, private student loans transfer to the co-signers. Life insurance for students protects co-signers of private student loans from owning that debt if the student were to die.
Business owners. Entrepreneurs may need a life insurance policy to ensure their business can continue without their contributions. Business owners can list their business partner or heir as their beneficiary.
Primary caretakers. If you care for a child with disabilities, an aging parent, or another family member, life insurance can ensure that your loved one continues to get care if you die. You can also set up a trust for the death benefit if receiving a large life insurance payout could disqualify your loved one from receiving government benefits.
Do you need life insurance if you don’t have any dependents?
If you’re young and have no dependents who rely on your income, you may not need life insurance right now. But there are some instances when it would still make sense to have a policy. Ask yourself these questions:
Can your loved ones afford the cost of an unexpected funeral? The average funeral costs more than $7,000. Your beneficiaries can use your death benefit to cover those expenses.
Did someone co-sign a loan for your home or car? If you have a co-signer, they’ll be responsible for the remaining balance if you die. A life insurance death benefit can cover the costs for your co-signer so they aren’t left to pay the balance alone.
Do you plan to have children in the near future? Many people wait until their children are born to purchase life insurance. But if you know you want to expand your family in the next few years, you can often lock in cheaper premiums by buying a life insurance policy now.
“If someone knows or expects they will have an insurable need soon, we recommend locking in coverage while you are younger and (usually) healthier,” says Patrick Hanzel, certified financial planner and advanced planning manager at Policygenius. “We recommend owning coverage as you would five years from today.”
That’s because buying life insurance when you’re young can save you money. Each year you delay buying a policy, the average cost of premiums rises by 4.5% to 9%.
Take a look at the term life insurance rates below to see how they increase by decade.
20-year term life insurance rates
Age | Gender | $250,000 coverage amount | $500,000 coverage amount | $1 million coverage amount |
|---|---|---|---|---|
20 | Female | $15.01 | $22.66 | $33.63 |
Male | $19.19 | $30.20 | $47.61 | |
30 | Female | $15.17 | $22.99 | $36.90 |
Male | $18.19 | $29.33 | $48.88 | |
40 | Female | $21.66 | $35.27 | $60.64 |
Male | $25.38 | $42.94 | $75.25 | |
50 | Female | $43.92 | $78.30 | $139.47 |
Male | $56.69 | $102.50 | $188.26 | |
60 | Female | $107.84 | $194.16 | $354.64 |
Male | $149.38 | $268.09 | $500.17 |
Methodology: Average monthly rates are calculated for male and female non-smokers in a Preferred health classification obtaining a 20-year $250,000, $500,000, or $1,000,000 term life insurance policy. Life insurance averages are based on a composite of policies offered by Policygenius from Brighthouse Financial, Corebridge Financial, Legal & General America, Lincoln Financial, Foresters Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 01/01/2024.
Who doesn’t need life insurance?
Retirees may not need life insurance because they no longer have dependents. Oftentimes, retirees have paid off major debts and have enough saved to pay for a funeral, such that their loved ones won’t be financially impacted by their death.
Children don’t earn income to support their family, so child life insurance isn’t necessary in most cases.
Learn more about the advantages and disadvantages of life insurance
The bottom line: When is life insurance necessary?
If someone depends on you financially (either because they’re your spouse, child, or business co-owner), or you have a co-signed loan or mortgage, or you expect either of those things to change in the next few years, it’s worth having life insurance.
With a life insurance policy, you’ll be able to protect your loved ones and/or co-signers from financial hardship if you die.
If no one depends on you financially and you’re planning on keeping it that way for the next several years, you probably don’t need life insurance.
But if you do get married, have a child, co-sign a loan, become a primary caretaker, or start a business, you should reassess — and get covered.
Learn how to find the best life insurance policy for you
