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Do I need life insurance?
Recently, a relative reached out to ask if he should get life insurance. He’s young, single, and child-free… but he’d just purchased his first home. Because of this, he felt that getting life insurance was the responsible thing to do.
Since he doesn’t have a partner or kids, my first thought was to tell him he didn’t need it. But after giving it more thought, I realized there are some situations where it may still be a wise choice. In this post, I’ll outline eight of those scenarios (some of which may surprise you)!
1. You have dependents (who are not your kids)
Think about the people for whom you provide financial and other support. It could be a parent with a chronic condition, elderly relatives, or a disabled sibling.
If your untimely death would create financial hardship for your dependent loved ones, you may want to consider life insurance. By naming them as beneficiaries on your policy, you could provide them with financial security after your passing.
2. You have a partner
Consider what would happen if you were gone. Would your partner be able to survive without your income? Or, if you’re a retired or stay-at-home spouse, what about all the unpaid labour you contribute?
For example: the meals you’ll no longer be there to cook or the dog you won’t be around to walk. Even if there are no kids in the picture, if you have a partner with whom you share a life and expenses, you’ll likely need life insurance.
3. You have a mortgage
You may want to purchase life insurance to cover your mortgage if you’d like to:
- Simplify the settlement of your estate.
- Leave more of your estate to your beneficiaries.
- Ensure your beneficiaries can pay off the mortgage if the property decreases in value.
Note: Don’t confuse mortgage insurance with life insurance! For many reasons, life insurance is by far the better choice. It’s more affordable and flexible, and the benefit value stays the same—even if you pay down your mortgage. Additionally, life insurance allows you to choose your beneficiaries. With mortgage insurance, the beneficiary is the bank!
4. You have joint or co-signed loans
Do you share credit card accounts with someone? (For example, a parent added you as a secondary cardholder on their account.) What about any co-signed loans? (For example, a car or personal loan.)
In both cases, if you were to pass away, the joint account holder or co-signer would legally be on the hook for your debt. Naming these people as beneficiaries on your life insurance policy will ensure that your debts don’t become their burden.
5. You own a business
If you own a business with one or more partners, it’s strongly advised that you have a life insurance policy on each partner. This coverage should be separate from any personal policy you may have.
You should hold separate policies to cover each business partner, with the surviving partner(s) as the beneficiary. This will allow the survivor(s) to buy out the deceased partner’s share in the company.
The reason for this is to allow the company to continue operating under the surviving partner(s)’ management. If there’s no life insurance policy (and legal documentation) to allow for this, the deceased partner’s share could go to their beneficiaries.
This could become a nightmare for the surviving partner(s) who may be forced to run the company with family members who are not suited for the job.
6. You’d like to cover your funeral costs
If you have an elaborate funeral in mind or feel you may not have enough in your estate to cover the costs for one, allow for this with a life insurance policy. Some people purchase small policies just to cover this expense.
Note: Don’t forget to also leave instructions for how you’d like to be memorialized and how your remains should be handled. I recommend leaving instructions like these in an ‘in case of emergency binder’. (If you’d like a done-for-you binder that you just need to fill in, I highly recommend this one.)
7. You’d like to leave a gift
Some of us want to leave gifts for loved ones, charities or causes we believe in. Even if these people and organizations aren’t dependents, it may be important for us to leave something behind for them. This would be a selfless and generous reason to purchase a life insurance policy.
The nice thing about leaving life insurance as a gift is that it goes to beneficiaries tax-free. This not only simplifies the settlement of your estate, but leaves more to your beneficiaries.
8. You’d like to hedge against poor health
This is an interesting one. Some people advocate for purchasing life insurance when you’re young and healthy—even if you don’t need it yet. The idea behind this is that you’ll lock yourself into a lower rate now, before any health conditions arise.
This could preemptively protect you and any future loved ones from rising insurance costs. In my opinion, this is a bit of a gamble! You likely won’t save much after shelling out for years of life insurance you didn’t need.
However, some people feel strongly about this! (I’ve even heard of people purchasing life insurance for kids for this very reason.) If you’re seriously considering it, I’d suggest contacting an advisor at PolicyMe to discuss the options.
Wondering if PolicyMe’s the right choice for you? Read my full review to find out!
Summing it up
Many people assume that no kids means no need for life insurance. However, it’s not that clear cut! There are many situations in which you may still want to purchase life insurance.
If you have other dependents, debt, a business, or simply want to leave more to your heirs, life insurance can help to protect and benefit those you care about.
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12 Comments
AnotherLoonie
November 11, 2020 at 7:02 pmI was called constantly by pushy insurance agents trying to get me to buy mortgage insurance. Their whole proposal made no sense to me.. I pay the same premium for 30 years and all the while my benefit is reduced? Glad I avoided that product. Term life insurance is the way to go!
Chrissy
November 12, 2020 at 11:07 pmHi Another Loonie—how unpleasant that must’ve been! It’s good that you knew better and didn’t cave to their high-pressure tactics. I agree—term insurance is a great choice.
Money Mechanic
November 13, 2020 at 2:41 pmI have always been pretty ignorant about life insurance, and without dependents I have never bothered with it. While I agree that term insurance is probably the most sensible and affordable option for most people. I did go down a rabbit hole on participating whole life insurance. It has some pretty interesting features for generating tax free income and protecting your estate. I’m not advocating for it, but it may be an unexplored strategy that some people on the way to FI may want to consider. It only makes sense if it is structured and used properly though. Of course the argument is that you could probably generate better returns outside of it and just use term life.
Chrissy
November 13, 2020 at 7:32 pmHey MM—you always know about all the creative investing strategies! I’ve heard of this whole life insurance tactic, but have never looked into it. We should talk, LOL.
Reverse The Crush
November 17, 2020 at 11:12 amGood points about large debts and as a hedge against health. I do not currently have life insurance because I don’t have any children or significant debts. But it could still be a good idea to get insurance now while I have good health. Thanks for sharing!
Chrissy
November 17, 2020 at 10:34 pmHi Graham—it’s a very personal decision, with many factors to weigh. For the most part, if you don’t have kids, you’re good to go without life insurance. Thanks for reading and commenting!
Tara
November 17, 2020 at 5:41 pmConfession: life insurance is one of those things I have never really thought too much about…which is likely terrible. I think it has a lot to do with the stage of life I’m in (married, no kids yet, renting, etc) but I know it’s something that might be worth checking into. Like one of the previous posters, I once had a…less than pleasant experience with a pushy sales person at my bank which really turned me off the idea. That was years ago, though, so it’s likely worth revisiting!
Chrissy
November 17, 2020 at 10:39 pmHi Tara—I think you’re in an excellent position to safely go without life insurance. Enjoy the savings while it lasts! It’s unfortunate that insurance used to be (and can still be) such a salesy thing. Hopefully that style of selling will finally die out in the next decade.
LIONEL PIGUET
January 3, 2021 at 12:15 amNever thought of it this way! I always thought Life Insurance was for “later”. You’ve definitely given me good for thought!
Chrissy
January 3, 2021 at 12:47 amHi Lionel—there’s definitely a lot to consider whether we opt in or out of life insurance. I’m glad this post was of help to you. 🙂
Kari
January 10, 2021 at 12:56 pmHi Chrissy. I fully agree with getting term insurance rather than mortgage insurance, for exactly the reasons you state. Plus your risk of death is probably highest (because you’re older) in the final years of the mortgage, when the payout is the lowest. Term life insurance doesn’t go down in value. I’ll also add 2 more reasons to get life insurance even if you don’t have kids. First, as a woman, pregnancy is risky (from an insurance statistic perspective) so you might find it easier to pass the medical before getting pregnant. And two, insurance is cheapest when you’re young. So get the most you can afford with the longest term, to lock in that low rate and avoid substantially higher renewal rates when you’re older.
Chrissy
January 10, 2021 at 9:11 pmHi Kari—I love how methodical and practical you are. Yes, those are all excellent points! I didn’t think of the pregnancy ‘risk’ (make sense, but it’s not one that I’ve ever seen mentioned).
That’s excellent advice to get the most you can afford with the longest term when you’re young. After all, you can always reduce the coverage and/or shorten the term later. But you’ll never be able to access such low rates again!
That said, is there a specific age that you’d recommend a young person purchase their first term policy?