Who Needs Life Insurance?

21 Feb 2019

Who needs life insurance?


This question as to who actually needs life insurance is an important one. The reason being is that when it comes to life insurance not everyone actually needs it!  While many insurers and intermediaries my try to convince people otherwise as a general rule is that you only need life insurance if you have dependents or financial liabilities.

So, who are the people who typically don’t need life insurance?

When you have reached retirement age, there's usually less of a need for life insurance. More often than not this is because your children are most likely financially independent and you're already living on retirement savings and investment income. One reason for an older person to keep a life insurance policy is to provide extra money for his or her spouse to cover unexpected medical and long-term care expenses later in life. Some older people hold onto life insurance policies as a way to pay for "end of life" expenses like the cost of settling an estate. But the most basic reason for retaining a life insurance policy later in life is also the oldest reason: to cover the cost of your funeral and burial.

Who does need life insurance?

Typically, life insurance is generally designed for younger, working people and very often people with families. This is largely due to the fact that life insurance is meant to replace your income to your family once you're not alive. For example, is a working parent was to die, you'll want your family to receive enough money to replace your salary for at least the next five to ten years. Stereotypically, dependents are children who still live at home or have yet to graduate from university. But a dependent could be anyone who is financially dependent on you, like a spouse, sibling or an aging parent.

 It is very common for people buy life insurance policies when they get married, particularly if the insured person makes considerably more money that the spouse, or if either the insured or the spouse have other financial dependents, like parents or siblings. Most people buy life insurance when they get pregnant with their first child.

It should be noted that even if you are a stay-at-home parent, you still have financial value to your family. Let's say you care for two small children. If you die, then your spouse will need to keep working, which means the kids will need a nanny or day care. You might not need a huge life insurance policy, but you can buy a policy that fits the financial needs of your family.



What are the other reasons for buying life insurance?

Another motive to buy life insurance to is to pay for a specific financial expense. More often than not this would be for a mortgage. If you purchase a home, it's common to sign up for a 20-year mortgage for example. However, what if you die in 5 years? A life insurance policy for the value of the mortgage would cover any outstanding payments and ensure that the property if left to your estate.

If you own a business and want to protect this in the event of death, then this too is also a good reason to take out life insurance. For example, if you're a partner in a small business and the success of the business relies significantly on your ability to bring in clients and money. Some people buy life insurance policies that name their business partner as the beneficiary. This lump sum of cash could help the business stay afloat while they learn to get along without you.







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