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Life Insurance

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Life insurance is designed to provide financial security for relatives of the deceased, most commonly spouses and children. If you support someone with your income or your time and they won’t be able to provide that support for themselves without you, then you need life insurance.

Life Insurance Introduction: Who Needs It? While it is possible to purchase life insurance for a child, it is generally unnecessary. Life insurance is supposed to make sure that anyone who depends on the insured for income or day-to-day support will be financially provided for when the insured dies. Children are rarely responsible for this level of support. Companies sell life insurance for children under the premise that parents will need it to pay for burial expenses if their child dies prematurely, that it’s a good way to save for a child’s future and that it’s a good idea to insure your child now in case they become uninsurable later due to a serious childhood illness. 

Many people don’t realize how important life insurance is; they are more concerned with saving and investing for retirement than they are with making sure they have enough life insurance coverage. (Source: http://www.foxbusiness.com/features/2017/03/16/americans-shun-life-insur...) While a retirement nest egg will certainly help your family, it will likely provide nowhere near the amount of financial support that an insurance policy could. Plus, early retirement account withdrawals may be subject to penalties and taxes, whereas life insurance proceeds are tax free.

But families can set aside money in savings to pay for burial expenses or plan to use their emergency fund to cover such a worst-case scenario, and there are better ways to save for a child’s future, such as custodial accounts and 529 plans. And the odds of becoming completely uninsurable before the age of 18 are slim. (For more on life insurance for kids, see The Pros of an Endowment Life Insurance Policy.)

Young adults often do not need life insurance because no one depends on them, either. However, the argument for purchasing life insurance as a young adult becomes more compelling if that individual plans to get married and/or have children. The younger and healthier you are when you buy life insurance, the less expensive it is. (For related reading, see How Age Affects Life Insurance.)

Further, some young adults may find that it makes sense to buy life insurance so there will be money to pay off their private student loans if they have a cosigner such as a parent who would struggle to pay the bill if it became their responsibility. Private student lenders do not necessarily discharge loans in these situations, though federal student lenders do; the only financial liability for the loan after death is that the deceased’s estate will be responsible for taxes on the amount of debt that was forgiven.

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