Indianapolis Office
Kathleen Hartman, CFP, CFA
317-576-1727
khartman@greenleaf-fg.com

Who Needs Life Insurance?

Many people shun life insurance because they are healthy, young, or wish to avoid thinking about dying.  These same reasons cause people to put off creating a will.  However, both life insurance and wills are key components for a family's financial security.

That said, most people do not need life insurance throughout their entire lifetime. They do, however, need it during certain key periods. Life insurance should be used to protect your most valuable economic asset, namely your earnings ability.

Here's a few pointers for determining whether you need life insurance. 

Not Necessary
Some people may never need life insurance.  Generally, the following categories do not:

  1. Single people with no financial dependents.
  2. Retirees with no significant financial obligations, such as a mortgage or college expenses.
  3. Children --since they do not have incomes to protect.

Maybe
Others may not need life insurance to help them achieve long-term financial security should one spouse or partner die. While the need is not compelling, they may prefer a modest policy just in case. Generally, the following people fall into this maybe/maybe not category:

  1. Wealthy people with enough savings and assets to support the surviving spouse and family members for their lifetimes.
  2. Working couples without kids that would not be impacted by the premature death of one partner.  In this era of income insecurity, however, this example is becoming increasingly rare.

Definitely
Under the following conditions, don't kid yourself. You need life insurance!

  1. Anyone with dependent children.
  2. Anyone married to a non-working spouse or married to a spouse with a substantially lower salary.
  3.  Anyone with someone to financially care for, such as special-needs siblings or financially strapped parents. 
 
In such circumstances, make sure you have enough life insurance to provide beneficiaries and dependents with the ability to maintain their standard of living over a very long time.  At a bare minimum, this typically means the equivalent of several years of earnings from wages and other sources.  Parents who have just started saving for college may wish to increase their insurance coverage, while a spouse's ability to have a secure retirement without the other's retirement savings is another consideration.

The relatively low costs of term life insurance mean most people can purchase far more coverage than they can with a whole life policy. As a result, term life insurance is generally the best vehicle to achieve the protection your family needs.

If your family would be adversely impacted by the loss of your income, then make sure you have taken care of life insurance, one of the cornerstones of financial planning.