If someone will suffer financially when you die, then you probably need life insurance.
It provides cash to your family after your death. Known as the “death benefit,” it replaces your income and can help your family with important financial needs such as funeral costs, daily living expenses and college funding. And there is no federal income tax on life insurance benefits.
The nonprofit Life Happens offers these eight scenarios for which you may need life insurance:
Would your surviving spouse’s income be enough to pay off debts such as credit card balances and car loans, monthly rent or mortgage, and utility bills? If you’re planning to have children, you’ll want to buy life insurance now because some insurance companies won’t issue policies to pregnant women.
You’re Married With Kids
Most families depend on two incomes to make ends meet. If you died suddenly, could your family continue meet all of its financial obligations—from paying rent or the mortgage to daily living expenses? Could your family continue its standard of living on your spouse’s income alone? Would future plans such as college stay intact?
You’re a Single Parent
Nearly four in 10 single parents have no life insurance, and many with coverage say they need more than they have. With so much responsibility resting on your shoulders, you need to make doubly sure that you have enough life insurance to safeguard your children’s financial future.
You’re a Stay-At-Home Parent
Just because you don’t earn a salary doesn’t mean you don’t make a financial contribution to your family. Childcare, transportation, cleaning and cooking, and other household activities are important tasks, the replacement value of which often is severely underestimated.
You Have Grown Children
If you died today, your spouse still would be faced with daily living expenses. Would your financial plan, without life insurance, enable your spouse to maintain the lifestyle you’ve worked so hard to achieve?
Depending on the size of your estate, your heirs could be hit with an estate-tax payment of up to 45 percent after you die. The proceeds of a life insurance policy are payable immediately, allowing heirs to take care of these taxes, funeral costs and other debts without having to hastily liquidate other assets, often at a fraction of their true value. Life insurance proceeds are also generally income-tax free and won’t add to your estate-tax liability if properly structured.
You’re a Small-Business Owner
What would happen to your business if you, one of your fellow owners or a key employee died tomorrow? A life insurance policy can fund a buy-sell agreement, ensuring that the remaining business owners have the funds to buy the company interests of a deceased owner at a previously agreed upon price. That way, the owners get the business and the family gets the money.
Most single people don’t need life insurance because no one depends on them financially. But there are exceptions. For instance, some single people provide financial support for aging parents or a sibling with special needs. Others may be carrying significant debt that they wouldn’t want to pass on to family members who survive them. If you’re young, healthy, and have a good family health history, your insurability is at its peak and you’ll be rewarded with the best rates on life insurance.
In short, life insurance makes sure that your plans for the future don’t die when you do.