Is it time for life insurance?

Insurance products are good to have “just in case” — especially life insurance. But how do you avoid paying for coverage that you don’t need? How do you know how much life insurance coverage will suffice? Let’s go through some important factors to consider.

Life stages

This is a common avenue that people use to judge their life insurance needs. Generally speaking, life insurance is not a necessity when you are young, single and have no children. If nobody relies on your income to survive, then prioritizing other financial goals could be a safe bet.

As you grow older, your circumstances may change, like when you begin to pay your own living expenses, or meet a life partner and start a family, or purchase a home, etc. The more responsibility you have, the more important life insurance becomes. If there are people or places that rely on your income, it’s important to provide a safety net through adequate life insurance coverage.

As you enter the later stages of life, your responsibilities may lessen. Your children grow and become independent; you reach your retirement goals; you downsize from a single-family home to a condo. As life events like these occur, you can adjust your life insurance coverage to avoid overpaying.

Romantic and platonic partnerships

If you share your expenses or combine income with others, like roommates or a significant other, life insurance could be a good idea. The sudden loss of your contributions could put a strain on those you care about. Your life insurance policy can provide a reprieve for them in the months following your passing.

Note: There are some restrictions on who can receive a life insurance payout, so while you may not be able to name your roommates on your policy, you can instruct your named beneficiaries to allocate funds or pay certain bills on your behalf.

Even if you are a stay-at-home partner who does not bring in a salary, your contributions to the household still warrant a life insurance policy. It may help your working partner find timely replacements for some (or all) of your responsibilities, including childcare, transportation, grocery shopping, meal preparation, laundry and cleaning services, etc.

Dependents or care recipients

You should consider life insurance anytime you have a child or other dependent. Your policy will help cover their living expenses in the unfortunate case that you pass on. And this doesn’t only apply to new parents either — adults who’ve adopted their younger siblings, children of aging parents, and caregivers to people with disabilities or ailing partners should also consider purchasing or increasing their life insurance when possible.

This can also apply to people who foresee one of these situations possibly occurring later. For example, a couple with frozen embryos may want to consider purchasing life insurance policies that can help cover future fertility treatments and childcare expenses for their surviving partner.

Other financial assets

Life insurance should always complement your other financial assets. For example, people who have built enough wealth to retire and maintain their income may not need to purchase as much coverage as someone who is just starting their retirement savings.

When making decisions about life insurance, think about your entire financial picture. But remember, life insurance is there to support your beneficiaries after your death. You’ll need to think about how your current wealth can support their future needs.

• If you are a business owner or partner, you can name your business as a beneficiary on your life insurance policy.
• You may designate a trust for a life insurance payout, so the funds are used in accordance with the rules of the trust. This can be good if you are listing a beneficiary who is currently a minor.
• Nonprofit organizations can be listed on life insurance policies.
• You can leave your life insurance to your estate, so it becomes part of your gross assets. If you have a large estate, heirs may be able to use the funds to cover the estate’s taxes. Note: Consult an estate planning attorney for specific advice in this area.

Professional guidance

If you are unsure whether your personal situation merits a life insurance policy, you may want to connect with a professional.

• Financial professionals can help you understand your current assets and see where you and your beneficiaries will have needs in the future.
• Insurance professionals know the ins and outs of different types of life insurance and can help you determine the best policy for your needs.
• Estate planning attorneys are especially helpful in complex situations, as they have the legal know-how and experience to mitigate confusion after your death.

Life insurance isn’t one-size-fits-all. As your life evolves, so should your coverage. Taking time to assess your needs — and revisit them regularly — can help ensure your loved ones are protected, no matter what the future holds.