If you’re trying to decide if you need life insurance, a good place to start might be to ask yourself: Would anyone be put at risk financially if I weren’t around anymore? If the answer is “Nope, nobody” — and you don’t expect that to change — you may not need a policy.
Life insurance isn’t necessarily a must-have for everyone. But if you have dependents or debt, or think you might someday, you may want to take a closer look at whether life insurance could be a financial tool to help protect your loved ones and your legacy.
Who Needs Life Insurance?
Many people think of life insurance as a way to replace lost income when one spouse dies and the other is left to care for the children. But in reality, there are several scenarios and life stages in which an insurance policy could play an important role. Here are few to consider:
If You’re Young and Single
Individuals who are young and in good health, and who don’t have anyone depending on them for financial support, might decide to forgo life insurance. But before nixing the idea altogether, here are some things to think about:
• Not all debt disappears when someone dies. Borrowers may want to use life insurance as a way to protect their loved ones from having to deal with their loans or credit card debt. For example, although federal student loans are discharged when a borrower dies, that may not be the case with all private student loans. A private lender may try to collect the money from the borrower’s estate or, if a parent or someone else agreed to cosign the loan, that person could be on the hook for the remaining debt. (The loan agreement should include information on this topic.) Similarly, if a parent cosigns for a car loan or opens a joint credit card account, the parent could be held responsible for any debt the estate can’t cover.
• Funerals aren’t free. According to the National Funeral Directors Association , the median cost of a funeral in 2021 in the United States, with viewing and burial, was $7,848. (That doesn’t include the costs of a vault, marker, or flowers.) The median cost of a funeral with viewing and cremation was $6,970. Many people buy life insurance just to avoid leaving this burden for their family and friends.
• It can pay to think ahead. Life insurance is generally less expensive — and easier to get — when you’re young and healthy. So even if you don’t have dependents or debt now, if you expect to marry, buy a home, have a family, or otherwise add to your financial responsibilities in the next few years, it might make sense to lock in a lower rate now with a term life insurance policy.
If You’re a Newlywed
Congrats, and welcome to a whole new way of looking at your finances.
• For better or worse, you’re in this with a partner. It’s likely that one or both of you entered this partnership with some debt, or that you’ll soon be taking on some debt together (car loans, a mortgage, credit cards, etc.). If one of you dies, the surviving spouse may not be responsible for paying off all of the other person’s debts, but any shared debt (joint accounts) could become the survivor’s responsibility. And in some “community property” states, a widow or widower may be required to pay debts the deceased spouse incurred on his or her own during the marriage. Depending on the amount of debt you have or expect to have in the future, you may want to use life insurance to protect each other in a worst-case scenario.
• Keeping your dreams alive. If you and your spouse have plans for your future, and your wish is that your spouse continues to pursue that lifestyle even if you’re not there, life insurance could provide a way to make that happen. The surviving spouse may use the money to pay bills and/or funeral costs, but also to buy a house (or pay for the one you just bought), keep a business going, or travel — things that might be difficult to accomplish with one salary.
If You Have Children
Parenthood comes with a whole new level of financial responsibility, with dependents who may be counting on you for decades.
• When a working parent dies, life insurance can replace that lost income. Insurance money could help pay day-to-day bills (rent or house payments, child care, medical care, food, and more), and it also can provide a more secure future for older kids who want to go to college or may need help with other expenses as they get on their feet after graduation.
• Replacing a stay-at-home parent’s contributions can be costly. It may be easy to overlook all the expenses a family avoids when one parent stays home to care for the kids, but those “services” (from chauffeuring to tutoring to housekeeping) could get expensive if an outsider has to take over. Insurance could help pay for the assistance the family needs.
• If you have a special-needs child, the surviving spouse may need to stay home or require extra help for years. Some parents may only want insurance coverage until their children are grown. Others might need a plan for how they’ll care for a child who may require some type of support forever. Insurance could help a surviving parent with those costs and alleviate concern about the future.
• Life insurance can provide a way for divorced parents to be sure that support continues if one dies. The court may even require parents to keep or purchase a policy as part of a divorce agreement.
If You’re Middle-Aged
It might be tempting to go without life insurance as your children grow up and move out on their own. But before making that choice, it may help to consider:
• You might not be done with debt just because your kids are grown. Some empty-nesters are still paying off a mortgage or borrowing to renovate and refresh their older home. They may have cosigned loans with their kids. Or they may be dealing with credit card debt. And by now, many or all of a married couple’s debts may be in both of their names. So if one dies, the other likely will be responsible for paying those bills. Life insurance could help the surviving spouse dump remaining debt before transitioning to retirement.
• Is someone still dependent on the money you provide? It could be a spouse, a grown child who is struggling financially, or even, at this point, aging parents or in-laws. If there’s no backup income source to turn to if you or your spouse should die unexpectedly, it may make sense to keep paying those life insurance premiums.
If You’re Retired
Even in retirement, life insurance can have a place in your overall financial plan.
• It can provide important income for a surviving spouse. Here’s something not everyone is aware of: If both spouses are collecting Social Security in retirement, and one of them dies, one of the benefit payments will go away. The surviving spouse will receive the larger of the two benefit amounts, but it won’t be the same as when both spouses received monthly payments. For example, if one spouse received $1,400 monthly and the other received $1,000, the surviving spouse would receive only $1,400 each month. That could be a devastating cut for a retiree who really needs the money. Insurance may be one option for replacing the lost income. And life insurance death benefits are usually tax-free.
• Life insurance can give retirees a way to create a legacy that benefits the people and causes they care about. If you want to leave something behind for loved ones, your alma mater, or a favorite charity, life insurance may offer the opportunity to make it happen.
The Takeaway
It can be difficult to think about paying for life insurance when there are so many other bills to worry about or other investment options to consider. Depending on where you are in your life, it might not seem like a priority. So it all comes back to that big question: If you don’t have life insurance and you were to die unexpectedly, how would the people you care about be affected?
Life insurance at every age is about protecting your loved ones so they won’t have to struggle financially when you pass away. And it can remove any burden they might have to take on if you’re carrying debt when you die. Before deciding if it’s worth it to purchase a policy, it may help to evaluate your budget, assess your needs and wants, and think about the role life insurance might play in your financial plan, now and in the future.
If you’re shopping for life insurance, SoFi has partnered with Ladder to offer competitive life insurance policies that are quick to set up and easy to understand. You can apply in just minutes and get an instant decision. As your circumstances change, you can easily change or cancel your policy with no fees and no hassles.
Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
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