You’ve probably heard of life insurance before, but it can often sound complicated and be scary to think about. So, what is life insurance and do you really need it?
What is life insurance?
Life insurance policies work similarly to other insurance policies. You pay a premium every month, but instead of providing coverage for, say, a car or a house, life insurance ensures that your family, business partner, or other benefactors remain financially secure when you die. Usually, money from a life insurance policy is used to pay debts, bills, or cover other expenses such as funeral costs.
While it’s not a legal requirement to have life insurance, certain groups of people could benefit greatly from taking out a life insurance policy.
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Who should take out a life insurance policy?
Most people benefit from the security that a life insurance policy brings, but this is particularly true if:
1. You have a significant other
A life insurance policy could be especially useful if you have a significant other that you have built a life with. Maybe you share a mortgage, car payments, or retirement savings. If so, taking out a life insurance policy can help make sure that your death doesn’t financially hinder your significant other.
Life insurance can even cover the cost of lost wages if you need to take time off of work following you or your partner’s passing.
2. You own a home
If you’re a homeowner, it can be very useful to purchase life insurance so that if you pass, the money can be used towards paying off your home’s mortgage. This is particularly important because mortgages are very expensive, and without life insurance, your family may be left to pay for the remaining cost of your mortgage out-of-pocket.
3. You have children
If you have children, a life insurance policy is a great way to make sure that your children can continue to be financially stable if you pass away unexpectedly. As well, depending on the amount of coverage your life insurance policy has, you could also leave enough money to pay for their future college education.
Life insurance can also come in handy if you experience the death of a child. A good policy could cover time off work in addition to funeral and burial expenses.
4. You own a business
Owning a business is exciting, but also comes with a slew of investments and inventory costs, which can oftentimes result in debt. With a life insurance policy, whoever is entitled to the business (such as a business partner or a spouse) can use the funds to pay off expenses while deciding whether to continue with or sell the business.
5. You have a high-risk job
Not all jobs are created equal. While desk jobs aren’t necessarily dangerous, professions such as firefighting, construction, aviation, or mining carry with them a higher risk of injury or death.
Although you will likely be charged a higher life insurance premium if you work in a high-risk profession, it is still a good idea to ensure that your family is taken care of if you pass on the job. And while some employers in dangerous fields offer group life insurance, it’s oftentimes not enough.
6. You want to leave a legacy
Even if you don’t fall under any of the above categories, some people get ease of mind knowing that their life insurance policy will positively impact their family or charity of choice. If you’d feel good passing down extra money for your grandchildren’s education, or for funding a local hospital, taking out a life insurance policy might be right for you.
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Who doesn’t need life insurance?
Some people may decide to opt out of purchasing life insurance for a number of reasons. This includes those who feel that they have enough wealth to pass onto their family or business when they pass without paying for a life insurance policy.
As well, some experts suggest that people without a partner, who are financially independent, don’t have debt and don’t own property or a business might be able to forgo life insurance because your family will unlikely inherit any of your expenses upon your death.
However, it’s important to remember that you shouldn’t depend on a life insurance policy as a means of income or retirement savings. Instead, it should be framed as an additional resource on top of the financial plan you already have.
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Talk to your insurance broker about your options
Because life insurance premiums increase with age, even if you think you’re too young to start thinking about life insurance, it’s a good idea to get a head start and speak with an insurance broker who can compare plans and help you figure out the best life insurance plan for you!
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