A policy that pays out a benefit to beneficiaries when we die Sounds like a nice thing to have. But Do I Need Life Insurance If I Have No Debt? Do I need life insurance if I don’t believe I’ll die anytime soon?
There is rarely a one-size-fits-all explainer for whether you’ll need life insurance. Your best bet is to review the basics of life insurance, as well as the various situations that may apply to you.
When Is It Good To Have Life Insurance?
If you die unexpectedly, and your death would leave important people in your life on the hook for debt, or unable to pay their bills, or saddled with expensive costs, life insurance can make sense for you.
Let’s review the scenarios where your death would most likely negatively affect other people financially:
- Someone would inherit your debt. Your debts don’t simply disappear when you die. Co-signers on a loan, joint owners or account holders, spouses in community property states such as California and Texas, and people tasked with settling your estate’s debt who didn’t comply with probate laws are all possibly on the hook to pay your debts.
- Your spouse or partner relies on your income. If you’re building a life with a partner, and that partner counts on your earnings to pay things like household expenses, the loss of your income could be devastating for them.
- Your children depend on your income. Your minor children, unable to provide for themselves, would almost certainly be put at a major disadvantage if your income disappeared. The same is true if they will rely on you to help cover college costs or provide support for a disability.
- Your heirs would owe estate taxes. If your estate is large enough, your heirs could be subject to an estate tax upon your death. In 2021, the federal estate tax kicks in if you leave behind assets totaling more than $11.7 million.
- Your funeral would be a financial burden. According to the National Funeral Directors Association, the median cost of a funeral with viewing and burial is $7,640. Depending on your wishes for your funeral, it could cost more. Life insurance can be a way for you to pay your own way, so to speak, keeping the burden off of those tasked with executing your funeral wishes.
- Your business, and the people it employs, might otherwise fail. If you own a business, your business partners and/or employees also depend on you. Life insurance can provide assistance to these people after you’re gone.
Other examples of financial burdens that you might leave behind include student loan debt (if the loan is from a private company and someone, such as a parent, is a co-signer), the costs of elder care that your family incurs while caring for you and the mortgage on a jointly held property.
Do I Need Life Insurance If I Have No Debt?
If you are debt free, count yourself lucky. You’ll be able to live without the financial stress that debt causes for millions of Americans. Your life insurance needs will also be much smaller too. If your family won’t incur any financial stress as a result of your death, you don’t need life insurance
Should I Buy Life Insurance If I have Debt?
If you have debt, you still should consider buying life insurance. The other part of being self-insured is having a large dollar amount in savings and investments. By “large”, I mean enough to cover all basic and potential extra living expenses for at least ten years, preferably twenty to thirty years.
What Kind Of Life Insurance Do I Need?
Basically, life insurance falls into two categories:
- Term life insurance is temporary — it can last for five, 10, 20 or another set number of years.
- Permanent life insurance covers the insured person until the end of their life.
Both types of life insurance come in different forms, with different benefits and levels of coverage.
Generally speaking, term life insurance is the more affordable and flexible option, and thus is the better choice for most people. You can tailor term life insurance to cover the years of your life when your death would most impact your loved ones, and then reassess when they are able to support themselves without your life insurance. To find the best rate, you can compare life insurance quotes online.
There are some situations where permanent life insurance makes more sense, particularly if you want to transfer your wealth to the next generation. That’s because the death benefit of life insurance typically is not taxable to the beneficiaries.
There is a lot of interplay here between the assets you currently own — your home, your investments, and so on — and factors such as your age, health and who you’re looking to insure. It’s important to speak with a financial professional such as a fee-only financial planner or lawyer to help you decide what kind of coverage is right for you, right now.
How Can I Avoid Debt?
Staying out of debt as much as possible can be incredibly helpful for your financial success in the future. Here are some tricks to help you avoid debt.
- Do an in-depth search of scholarships and grants when applying to college or university. Go beyond the scholarships your school offers and look at offerings by private organizations as well. There are scholarships for almost everything nowadays, and you might be surprised by what you qualify for. Search for scholarships for your major, as well as scholarships targeted to people of your ethnic background, location, financial status, and more. The things that make you unique can actually help keep you out of student loan debt as well.
- Put money into savings when you can. During times when you have extra cash, try to resist the temptation to spend it. Instead, put it into savings, or even better, invest it so that money can grow. Even taking a small amount out of each paycheck to put into a savings account can make a huge difference down the road if you do encounter financial challenges.
- Consolidate any debt you do have. This will make it much easier to pay off in the long run, because you won’t incur as much interest. Many banks and other financial institutions have programs that make it very easy to consolidate existing debt into one monthly payment. When you don’t have to worry about making several different payments each month, things start to feel less daunting.
If you are debt free, count yourself lucky. You’ll be able to live without the financial stress that debt causes for millions of Americans. Your life insurance needs will also be much smaller too. If your family won’t incur any financial stress as a result of your death, you don’t need life insurance. You can skip that monthly payment and put it towards something else that will enrich your life. You can also opt for a very small life insurance plan for extra coverage if you feel you need it.