When do you need to buy life insurance?

Life insurance isn’t usually on a twentysomething’s list of financial priorities.

And that’s okay. Maybe.

If you’re happily single and childless, you can probably skip this post (for now). But if marriage or a family is on the horizon, read on.

Although age may play a role in how much life insurance coverage you need, the decision to buy life insurance has nothing to do with age. So when do you need life insurance? Here’s the simple rule:

You need to buy life insurance when somebody else depends on your income.

Here are some common examples:

If you’re 25 with a wife who is staying home with a newborn, you DO need life insurance.
If you’re 29 and single, you DO NOT need life insurance.
If you’re 27, married, and both you and your spouse work, you might not need life insurance yet, but you may want to start thinking about it anyway.

Do I Need Life Insurance?

Insurance is important.

You probably need it to protect your car. If you own a home, you’ll need insurance to cover damage to the structure and the belongings. But do you need life insurance?

It depends. The truth is, not everyone needs to have a life insurance policy in place. But not having it can be a costly mistake if you’re one of the people who do need it because, well, life happens.

Here are a few categories to consider when determining if you should be buying life insurance or not.

Number of Dependents

First and foremost, life insurance should replace your income if something happens to you. The most important consideration when it comes to life insurance is what the world would look like if you weren’t in it.

Chances are, your thoughts will immediately go to your loved ones. If you’re no longer bringing in money, how will this affect your survivors? Life insurance is designed primarily to replace this income, allowing your family to stay in your home and continue to pay the bills. Your need for life insurance increases if you own a home or have children.

Age

One mistake twentysomethings make is in assuming young people don’t need life insurance. After all, your odds of dying are fairly low.

But when it comes to life insurance, there’s one good reason to start young: price. The younger you are, the better those monthly premiums will be. If you’re buying a term policy to last 20 or 30 years, buying early could pay off in the long term.

Health Conditions

As with age, insurance gets pricier the more health conditions you have. If you’re young and in pretty good shape, you’ll likely find that you can qualify for lower premiums than you would if you have to disclose a few issues.

Even if you’re in the best health, though, you never know what tomorrow will bring. If you put a policy in place and things take a turn, your family will have some peace of mind, knowing that you have insurance.

Cost of Living

Yes, your family is one consideration, but your cost of living also comes into play. If you have a mortgage on your home, for instance, your untimely death would leave your survivors with the responsibility of paying it.

Look at your overall monthly expenses and determine how much of a hole there would be if your income was gone. Not only will this help you determine whether you need life insurance, but you can also decide how much of a policy you need to ensure your survivors can pay those bills long after your death.

Professional Situation

If you work for someone else, you’ll only need to worry about your personal expenses. But what happens when you run a business? If you have a business partner or employees, you’ll need to think about the effects of your death. You could set up a life insurance policy with your business partner as the beneficiary to keep things going.

But even if you’re a sole proprietor, a life insurance policy can be a good move. Chances are, you have some business debts that would have to be paid off if you were no longer around. Life insurance gives your loved ones the funds they need to tie up all the loose ends.

Amount of Savings

Businesses aren’t alone in leaving loose ends. If you die, you’ll have personal debts that will need to be paid off. Yes, some debts are discharged in the event of your death, but others will come out of your estate, leaving less money behind for your loved ones.

There’s also the matter of funeral expenses. Life insurance will give your family the funds necessary to pay all of those final expenses and get the closure they need. Look at your savings and determine if you have enough to cover those costs. If not, a life insurance policy could be what your family needs to cover everything.

While all this death talk may be a little morbid, it’s more important that you have the peace of mind you need to know your loved ones have security. Chances are, your life insurance policy will never be used, but having one may help you sleep a little better at night.

Starting a Family Means Buying Life Insurance!

In most cases, you need life insurance when you start a family. Because life insurance isn’t for you — it’s to provide for your family in case you die and can no longer take care of them.

In addition, there may be special situations in which you don’t have a family of your own but may still want some life insurance protection. For example, if a parent has cosigned a large student loan or a mortgage for you, a modest life insurance policy could pay their share in the event something happens to you. *See footnote.

Most people begin to think about life insurance when they have children and want to ensure their financial protection. That’s what my wife and I did. Shortly after our daughter was born, we both took out term life insurance policies in amounts that would replace each of our individual income for 20 years and cover the expected cost of our daughter’s college tuition. When our second child was born, we increased our policy to take our son’s expenses into account.

If you’re wise, you might start planning for your life insurance needs before your first child is born. For example, if you’re married, you and your spouse may want to take out life insurance for each other, even if you both work. Many couples rely on two incomes to pay monthly expenses, and if one spouse dies, the other would have to cover those same expenses on their own.

How to Buy Life Insurance

When you decide you need to think about life insurance, determine how much life insurance you need:

Multiply your annual income by the number of years you want the insurance to cover.
Add any fixed expenses (like kids’ college tuition).
Finally, subtract any non-retirement savings or investments you have that could cover some of these costs in lieu of an insurance benefit.

Alternatively, use our simple life insurance calculator to quickly get an approximation of how much life insurance you should buy.

Next, shop around for the lowest quote and the best policy.

You can hop from one major provider’s website to the other, or you can use a company like Policygenius, which scours the internet for the best policy that suits your personal needs. Just fill out their short application form and they’ll find you the highest-value option available. Or, if you want to avoid taking a medical exam, that’s an option through Policygenius (thanks to their partnership with Brighthouse SimplySelect℠).

You can get up to $2 million in coverage, and all you’ll need to do is talk with a Policygenius agent over the phone and answer a questionnaire. You won’t be stuck with high premiums that typically come with no-medical exam life insurance policies, either.

You should also take the time to learn more about the differences between term life insurance and whole life insurance (sometimes referred to as permanent life insurance). Lauren and I stuck with simple term life insurance, and recommend you do, too.

Bestow is a great life insurance company to start with if you’re looking for a term life insurance policy. They have a simple online application and they don’t require a medical exam! Their support is not commission based, so they won’t upsell you on policies you don’t want. Bestow’s life insurance coverage ranges from $50,000 to $1.5 million and is available in term lengths of 10, 15, 20, 25, or 30 years.

Summary

So, who needs life insurance? Those whose death would leave loved ones financially strapped. If you have people depending on your income, a life insurance policy is a wise idea. Your age, health, and other factors also determine whether you need life insurance, but simply having a policy can give you peace in knowing that your loved ones will be taken care of if something unexpected happens.