If you think life insurance is only for wealthy people, you’re in for a big surprise. Life insurance is so important because it protects people who depend on you financially, if you die. It pays one or more beneficiaries as soon as you pass away so that they can pay expenses and replace your lost income.
One of the top reasons people who need life insurance don’t buy it is because they think they can’t afford it. But here’s the rub: studies show that consumers actually overestimate how much they believe life insurance costs—by as much as three times!
Did you know that if you’re in your 30s or 40s, you can get a 10-year term life policy that pays $500,000 for around $20 to $25 per month? In my book, that’s a bargain!
When Should You Buy Life Insurance?
Here are eight instances in life where it’s time to step up and buy a life insurance policy:
1. You’re the breadwinner.
If you’re the only person earning money to support your household, you need life insurance. Think about what would happen to your spouse or children if you weren’t alive. Would there be enough to pay for ongoing expenses like a mortgage, rent, or daycare?
2. You co-signed for debt.
If you have debt in your name only, no one is responsible to pay it except you—even after you die. The money in your estate must be used to settle your debts and if there isn’t enough, creditors are generally out of luck.
But if you co-signed for debt with another person—such as a credit card, mortgage, or student loan—that’s another story. Anyone named on a joint account with you would be responsible for 100% of the debt if you die. So having life insurance to cover outstanding debt on joint accounts is very important.
Also, if you’re married and live in one of the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), your spouse may still be responsible to pay the debt acquired during your marriage, even if it’s in your name only.
3. You take care of aging parents.
If you’re single and have financially dependent parents, then you need a life policy to keep them secure if you aren’t capable of being around to care for them.
4. You want your children to get a college education.
The cost of higher education rises every year and few students can graduate from college without going into debt. If you want to pay for a child’s private school or college education, life insurance is a surefire way to make sure it can happen, even if you’re not alive.
5. You want to leave cash to heirs.
If you have multiple heirs, leaving cash from a life insurance benefit, instead of assets (like houses or cars), is an easy way to distribute wealth in the proportions you want. For example, if two children inherit a house that’s paid for, one might want to keep it as a vacation home, but the other might need to sell it because he can’t afford the annual taxes and insurance.
6. You don’t want heirs to pay estate taxes and fees.
If you have a large estate, there will be taxes, as well as legal and administrative fees that must be paid. Sometimes heirs are forced to sell estate assets in order to afford these charges.
You can use life insurance as an estate planning tool to fund your estate’s liability and make sure your heirs receive exactly what you want.
7. You have a family member with special needs.
If you have a child or other family member with special needs, you may need permanent life insurance. This is a type of policy that covers your life no matter when you die and has a savings component, in addition to a death benefit.
8. You want your funeral costs covered.
A traditional funeral that includes a burial can cost over $10,000. Consider what kind of funeral you want and whether your family could afford it if you didn’t have life insurance.
If you already have life insurance, review your coverage at least once every few years, or whenever you have a major change in income, expenses, or family status. The need for coverage changes as you enter a new stage of life and you may need more or less coverage than you did before.
You can calculate the amount of coverage that’s right for you and compare rates at sites like insuranceQuotes.com and netQuote.com. Remember that life insurance isn’t a luxury—it’s a necessity that’s truly affordable for the vast majority of consumers who need it.
Featured photo credit: zimmytws via shutterstock.com