Do I Need Life Insurance?

This is Part 1 of our series on Life Insurance. Check out the other two:
Part 2: How To Choose Life Insurance: Term Vs. Permanent
Part 3: How Much Does Life Insurance Cost?

Most of us know it’s important to get life insurance at some point, but we often procrastinate until there is a significant life event that pushes us to buy it, like getting married or having children. But life insurance isn’t just for when you start having kids! Taking out a life insurance policy early on, before you need it, can mean significant savings and provide you peace of mind.

They say the only things certain in life are death and taxes, and it’s unfortunately true that death can happen unexpectedly, no matter what age we are. So even though choosing life insurance can feel like a chore, you don’t want to leave it too late!

Image with text: Needing insurance is like needing a parachute... if it isn't there the first time, chances are you won't be needing it again.

What Is Life Insurance?

Life insurance is essentially a contract where, in exchange for you paying regular premiums, an insurance company makes a payment to your beneficiaries when you die. Depending on the kind of life insurance that you get, your life insurance policy can also serve as a financial investment with cash value.

Why Get Life Insurance?

Most people buy life insurance so that if they die, their family and loved ones will be financially protected.

If anyone in your life depends on your financial support, and would have difficulty providing for themselves without you, then life insurance is an essential part of ensuring they’ll still be taken care of. This usually means spouses and children, but it could also include aging parents or a business venture.

And life insurance isn’t just for replacing lost income. You might also get it to cover any debts your dependents would become responsible for, or to take care of bills like childcare costs, a mortgage, or medical expenses. People also use life insurance to cover the costs of their funeral or leave a legacy to loved ones and charities.

Whether you wish to leave $5,000 or $500,000, establishing a life insurance policy early gives you peace of mind that you won’t leave anyone in a financial mess.

Who Needs Life Insurance?

Start off by asking yourself, “When I die, who would be affected from a financial standpoint?” This isn’t as black-and-white as whether you have children or a partner who relies on you, so really think it through.

To help, here are some situations where you might find life insurance valuable:

1 • You are a young single adult

Even if you have no dependents, life insurance can be beneficial in covering your own funeral expenses. The costs for even a simple funeral can run to thousands of dollars, with the average funeral costing somewhere between $7,000 and $9,000. Even an adult in their 20s might want a life insurance policy to have the peace of mind of knowing their family can’t be burdened with unexpected funeral costs.

You may also want to buy life insurance earlier in life to lock in an affordable rate on your premiums. It’s easy to shrug this one off, especially if you haven’t had children yet. But as the risk of poor health increases as you get older, waiting to purchase cover could increase your premium rates. The smart option is to start your coverage when you’re young and healthy, and then review your coverage needs in the future as your family and career circumstances change.

2 • You are married

When you have a spouse but no children, life insurance may not be essential, especially if both partners are bringing in an income that they feel comfortable living on alone.

But life insurance is important when only one spouse works, when one spouse makes more money, of when you simply want to leave your significant other in a better financial position if you pass away. In those cases, getting life insurance early can be a great idea. You might want to consider term life insurance, or a first-to-die life insurance policy where you pay for only one policy and the death benefit goes to the first to die.

3 • You have children

If you die leaving behind children, it can be very hard for them to make ends meet without your income. Life insurance will make sure they have the financial support necessary to pursue life as you would like them to, such as being able to afford a car or attend college.

4 • You have a mortgage

For most people, your house is the most valuable asset you will ever own. But what would happen to your home if you were to pass away? Life insurance can ensure that your spouse and children can afford to stay in the house without it becoming a financial burden to them. You may want to set up life insurance benefits to help them continue to make monthly mortgage payments and utility bills, or even pay off the entire balance in full.

5 • You are a business owner

What would happen to your company if something were to happen to you? Do you have a succession plan that considers both the people and the money necessary to keep your business thriving? Your business may be the legacy you want to leave behind, and life insurance can ensure the survival of your lifetime’s work and protect your business partner’s interests in the event of you passing.

6 • You have debts

It is crucial to consider who would assume your debts if you were to die tomorrow. If you own a home or a business, or have personal liabilities like credit card debt or a car payment, someone else will become responsible for those payments when you pass away.

This is typically your next of kin, so your spouse, parents, or siblings could end up with the unexpected financial burden of having to pay your debts. Life insurance ensures that you won’t leave anyone in financial difficulty.

7 • You have elderly parents

If you are responsible for older parents, you might suffer a financial loss when they pass away, such as funeral expenses, estate taxes, any person debt, or a mortgage. This is called an “insurable interest,” and it means you can take out a life insurance policy on your parents with yourself as the irrevocable beneficiary. This way, when your parents die, you receive the amount of the life insurance policy and don’t have to struggle financially at an already difficult time.

8 • You want to build a financial portfolio

If you choose a permanent life insurance policy like Whole Life Insurance, your minimum cash value is guaranteed, the policy’s value will increase every year, and you’ll most likely also receive annual tax-free dividends. You can also use the policy as collateral and borrow against it. All this means that the right kind of life insurance policy can be an excellent investment as part of your complete financial portfolio.

When you’re ready to get life insurance set up, just give us a call! Parkwood Insurance has over 20 years of experience and expertise, so we know the ins-and-outs of the life insurance products offered by dozens of major companies. We’d be happy to guide you through the process and help you find the right insurance policy for your needs.

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More To Explore:

How Much Does Life Insurance Cost?

There are just too many variables that affect the cost of life insurance, including age, gender, health, and the amount and type of insurance you’re looking for. Take a look at these factors to get an idea of where you stand.

How To Choose Life Insurance

Term? Permanent? Whole life? Variable? We explain the differences and the pros and cons of each.