Life insurance: is now the time?

When you're single

Sad though your death would be, it's unlikely it would create financial hardship for anyone. An honest assessment of your financial responsibilities would more often than not conclude that you have little or no need for life insurance.

An argument could be made that you’ll benefit from buying a policy now while you're young and rates are low. And if someone—a parent, say—depends on you for financial support, then by all means, consider life insurance.

But also weigh the compound interest you could earn by saving and investing your money, rather than spending it on insurance premiums. If, on the other hand, a parent or grandparent wants to buy you a policy now to lock in low rates for later in your life, accept it gratefully.

Love and marriage

If you’re married with no children you also may only need minimal life insurance—especially if you both contribute equally to the household income. Financially, the death of either of you might be a strain, but it shouldn’t be catastrophic. You should be able to survive on your own income.

There’s a chance, however, that the survivor might not be able to afford the same mortgage or rent payments. Perhaps you’re carrying a considerable amount of credit card debt. There will also be funeral costs.

This is why it’s often a good idea for both of you to purchase a modest amount of life insurance to protect the other.

Married with children

A one-income family with young children is the classic ‘high need’ situation. Basically, everyone in the household is dependent on one breadwinner for their support. Insurance on that spouse’s life is vital. Even if the non-earning spouse dies, there will be very expensive child care costs that make a strong case for insuring both lives.

The same high need typically exists for dual-income households with children (especially when there’s significant income disparity), for single parents, and for those caring for elderly parents who have limited resources of their own.

The golden years

Your kids have grown and are self-sufficient. You’ve got a solid pension and considerable retirement savings that can be used to generate a good income for your spouse if you die. In circumstances like this, you clearly don't need as much life insurance as you once did.

But the one caveat here is estate planning. If your assets are substantial enough to be subject to estate taxes when you die, your heirs could use a life insurance policy’s death benefit to pay the IRS. And if the policy is held by a trust, the proceeds won’t be counted as part of your estate.

For this purpose, a permanent life policy is generally preferred. Since you don't know when you will die, you'll need to be able to hold on to your coverage indefinitely.