There’s an old saying that goes, “To someone with a drill, every piece of wood needs a hole.” The same can be said of many life insurance agents: “To a life insurance agent, everyone needs a life insurance policy.”
Jump ahead to these sections:
- What Makes a Person Less Likely to Need Life Insurance?
- What Makes a Person More Likely to Need Life Insurance?
- Different Types of People Who Don’t Need a Life Insurance Policy
But that’s not always the case. Although life insurance is a necessary part of many people’s financial plan, and although it’s helped many families survive financially, some people just don’t need it.
In this article, we’ll see who doesn’t need life insurance, why they don’t need it, and how you can figure out if you need it.
What Makes a Person Less Likely to Need Life Insurance?
Life insurance can be vital to a family’s well-being. But sometimes, it isn’t—like when your kids are grown, or you’ve accumulated enough money that you no longer need life insurance.
It was a good decision on your part to have it when your family’s financial well-being was at risk if you died, but things change. It can be compared to someone not needing to pay for car insurance any longer because they no longer drive.
The primary purpose of life insurance is to pay a death benefit to a family when the primary breadwinner dies. Even though many people still buy expensive whole life and universal life policies to accumulate cash savings as part of their policy, the number-one reason is protection against premature death.
A person is less likely to need life insurance when their survivors can manage financially without their paycheck. Perhaps the surviving spouse earns enough to cover all of the family’s expenses, or other family members would help out financially. Maybe a couple has accumulated enough money in their retirement account that it would be sufficient for the surviving spouse to live comfortably for the rest of their life.
What Makes a Person More Likely to Need Life Insurance?
The best way to answer this question is with another question: “Would your death have a negative financial impact on the important people in your life?” If the answer is yes, then you likely need life insurance, and you might want to find out how much life insurance you may need.
Let’s look at seven reasons that can make it a good idea to own life insurance:
Your survivors would inherit your debt
If you’ve co-signed a loan, are a joint account owner, or live in a community property state like California or Texas, your family may be financially obligated to pay off any debts you have after you die.
Life insurance can provide your survivors with the ability to pay off credit card balances, student loans, or other loans you’ve taken on. Without life insurance, they may find themselves in a financial hole that could take years to dig out of.
Your spouse or partner relies on your income
Today, most households with two adults depend on having two incomes. But if your partner in life relies on your income to pay living expenses, they could be behind the eight ball if you don’t have life insurance.
Your children depend on your income
It’s expensive to raise children. Braces, clothing, food, and activities are just a few things that can become a big part of the monthly budget. If your spouse can’t take care of the kids without your income or you’re a single parent, you very likely need life insurance. You may also want life insurance if you want there to be enough cash available to pay for their college education.
Your heirs would be saddled with estate taxes
It currently takes an estate valued at over $11 million to be liable for estate taxes. If your estate could hold a worth that high, and you don’t have enough cash or liquidity to pay the estate tax bill, a tax-free life insurance death benefit will help ensure your family will be OK financially.
Your funeral would be a financial burden
Most people would rather not leave their family members responsible for funeral costs. Funeral costs can easily exceed $10,000, and the cost of cremation with a memorial and urn costs almost $2,000, on average.
Life insurance relieves your survivors of the burden of paying those costs, and they’ll remember how much you cared to keep paying for your life insurance policy every month with them in mind.
Your business might fail, and your employees might suffer
If you’re a partner in a business or you’re going to leave it behind to someone who’ll require a ramp-up period to run it, life insurance will help you meet payroll expenses and keep the business afloat.
You have an elder relying on you for financial support
With the aging of Baby Boomers, an increasing number of younger adults are now, or will be, putting the person they care for in a financial bind if they die without life insurance or without leaving a substantial estate behind for them.
Different Types of People Who Don’t Need a Life Insurance Policy
Now that we’ve established the profile of someone who needs life insurance, let’s look at who doesn’t need it. Here are five reasons:
You’ve gone through a divorce
Often when people divorce, they no longer want to provide a death benefit for their ex-spouse. If you decide to keep it, make sure you change your beneficiary if you legally don’t need to continue to carry the life insurance with your ex-spouse as the beneficiary.
You need long-term care insurance
If you’re concerned about where you’d live when you can no longer live in your home and how you’re going to pay those considerable monthly costs, you may decide that long-term care insurance is more important to have than life insurance.
If you decide this is best for you, try to do it when you’re in your 50s before you develop age-related health problems that might preclude you from qualifying for the coverage or having the rates raised substantially if you can still get it.
Your children are grown
Our financial obligations are the most significant when we’re in our late 20s through our 50s or 60s. Mortgages need to be paid off, and kids need to go to college. If your kids are grown up and financially self-sufficient, and you don’t want to leave them a life insurance windfall, you probably don’t need life insurance.
You're self-insured
If you’ve accumulated a substantial amount of money that your family could access and use in place of your income, you probably don’t need to own a life insurance policy. Just be sure there’s enough there to cover the kids’ costs through college, and leave enough for your spouse to maintain a home and lifestyle after you’ve passed away.
You won’t have to pay estate taxes
A tiny percentile of people has an estate valued at over $11.7 million. If you’re in the majority that doesn’t, your heirs won’t have to come up with millions of dollars in estate taxes.
How to Determine if You Might Need Life Insurance
Not quite sure whether or not you need life insurance? Here is one golden tip to help take out the guesswork and not pay for something you don’t need:
Get with somebody who can do a financial analysis for you, which will help you determine if life insurance is a necessary part of your financial plan.
The most qualified person to do that would be a certified financial planner. They will take the time to do a thorough “needs analysis” with you to help you see your complete financial situation and see which category you fit into.
If you need life insurance, they can help you pick out the best type of life insurance for you. Make sure they only charge a fee for their services and don’t earn commissions on product sales, which could impact their recommendation to you.
One of the ironies of life insurance is that it’s essential to have it at some stages of our life, but we hope we won’t have to use it. The primary purpose of life insurance is not to be part of your investment portfolio; it’s to provide a lump sum of cash to people who need it the most.
It’s nice to think about leaving a big inheritance to your family, but it may not be necessary for them to have a comfortable life financially without you. Have your situation evaluated by an unbiased professional that can steer you in the right direction.