We get this question all the time: Who needs life insurance? While we can certainly come up with a robust list of people who would benefit from life insurance, we actually prefer to think of life insurance as a WANT rather than a need. After all, when you know what we know, everyone should want life insurance.
Why People Need, or Want, Life Insurance
Like any other insurance product, life insurance is meant to protect against the loss of something. In this case, it’s your loss of income. After all, if you pass away, you may leave your loved ones behind without your income as support. This is the most basic understanding of insurance as a product. This windfall also allows family members time and space to grieve and make arrangements without financial pressure. If they can’t have you in their life, then at least they can be unburdened by additional woes.
The reality is that death is guaranteed for everyone. While we can’t say when or how, we know that it is going to happen someday. And what is the possibility that it’s going to happen at an inconvenient time? Most people might admit that ANY time is inconvenient. After all, we want our loved ones to be with us for as long as possible. Life insurance gives you the peace of mind that when it’s your time, you’ll be leaving your loved ones in the best financial position possible. When you erase this fear, you don’t have to be afraid to really live your life.
Life insurance alleviates that fear of “when,” by helping people be confident that regardless, the people and things that matter to them will be taken care of. That’s really what insurance is: peace of mind.
So who “needs” insurance? Well, we think these are the people who are most inclined to want life insurance for that peace of mind:
- Newlyweds who want to ensure that their spouse has the resources to keep going in the event the other passes. Especially for young couples who may be bringing debt to the table.
- New parents who want to ensure that their kids will always be cared for financially, no matter what happens
- A young person who wants to build their savings in a place with some versatility.
- Someone who wants to start a generational wealth-building strategy for their family.
- A business owner who wants to insure their key employee in order to have the funds to train someone in the same way. This could also be used to offer bonuses, vacation pay, or a pension in the future.
- A grandparent who is ineligible for their own policy, so they buy one for their grandchild.
Who Doesn’t Need Life Insurance?
While everyone can benefit from life insurance, and we think everyone should want insurance, some people are simply not ready. Either they don’t have good money habits, they’re in it for the wrong reasons, or they’re still learning.
For example, someone who is not in the habit of saving money, or is living paycheck to paycheck, may not be ready for whole life insurance. Term insurance could still be valuable to them, of course, though they’re really not in a position to start using whole life insurance as a savings vehicle. What they could do is start establishing a savings habit. After a year, this person could reevaluate whether they’re ready to start paying a whole life insurance premium. In the meantime, term insurance (especially convertible term insurance), could help to cover the insurance need.
Typical financial planners would say that young, unmarried people don’t need life insurance, especially not whole life insurance. We disagree. In addition to the savings component of whole life insurance, it’s also important to note that young adults are likely to have student debt and maybe even some consumer debt. If they pass, this debt may fall to the parents. The death benefit could help parents cover these debts and other end-of-life expenses. That money would also allow parents the time to grieve without working.
Another argument against who “needs” insurance is that retirees don’t have an insurance need. However, whole life insurance can provide a financial foundation that allows retirees to spend down other assets without disinheriting heirs. It can also be used to bridge income so that retirees are not forced to take money from equities in a down year.
Bottom line? Even those who you don’t expect to “need” insurance can still benefit from it. In fact, most people’s finances are better off with insurance, so long as they can afford the insurance.
If you’d like to see what insurance you’re eligible for, let us put you in touch with a Prosperity Economics Advisor.