Think You Don't Need Life Insurance? You Might Not! Here's Why

I decided to get life insurance last year, right before I did some genetic testing for cancer. I thought carefully about the implications of what a predisposition to cancer could mean for my family.

Initially, I dreaded adding another bill to my family's already ample monthly expenditures, then talked myself out of those thoughts. In all honesty, once I clicked the "purchase now" button on the insurance website, I felt a great weight lift off my shoulders. 

I felt pretty good about this solid decision to protect my family’s future. 

So, does life insurance have relevance for you? In all honesty, everyone should get life insurance if they have debt or dependents, but you might not need it at all. Let's explore.

What is Life Insurance?

Life insurance, an agreement between you and an insurance company, confirms that your insurance company will pay an agreed-upon amount of money to your beneficiaries when you die. You pay a monthly premium for that agreement between you and your insurance company.

You can choose any legal adult to become your beneficiary — your spouse or partner, a parent, a sibling or even a friend. (Note that minor children cannot directly receive money from a life insurance policy. Your kids' legal guardian would need to handle the proceeds from your insurance company — another good reason to update your will!)

Life insurance benefits can help pay for final expenses, death taxes, and bills upon your death. It can replace your income when you die, so your loved ones can cover essential expenses in the years after your death. The life insurance payout could cover your family's entire mortgage or pay for college tuition for your kids. Your family can also use it to pay off credit card debt, a second mortgage or a boat loan. As you can see, you can tap into endless uses for life insurance.

Two Types of Life Insurance

You may have heard of lots of different types of life insurance, which can make it all the more confusing to choose which type you want.

However, when you break it down, you can access two different types of life insurance: term and permanent life insurance. You can choose from a few variations and combinations of these two, such as universal life insurance. However, to keep it simple, let's just go over the basics of term and permanent life.

Term Life Insurance

Think of term life insurance as temporary insurance. Put simply, term life insurance gives you life insurance for a set period of time, typically between 10 and 30 years. If you die within the term (and you've continued to pay your premiums) your beneficiary receives the cash benefit. However, when you outlive the policy, the policy ends and you don’t get any money from your policy. 

You may want to consider term life insurance as a way to back up your debts while you have them. As time goes on, your debt may decrease. For example, let's say you buy a 15-year life insurance policy and you have a 15-year mortgage. Your life insurance policy covers the amount of time you'll stay in debt with your mortgage exactly and the term expires as soon as you pay it off. At that point, you may not need a large payout to cover your major expenses.

Permanent Life Insurance

Just as its name implies, permanent life insurance stays in force until you die. You may have heard of two major forms of permanent life insurance: whole life and universal life. Whole life and universal life both allow you to save money in addition to the death benefit. Universal life insurance even ties into stock market performance. 

The insurance company pays out the face value of the policy to your beneficiary or beneficiaries when you die.  

Permanent life insurance costs more than term life insurance and often requires a more detailed health examination. You may want to choose permanent life insurance for long-term savings and as a guaranteed way to leave money for your loved ones upon your death. 

How Do You Know Whether You Need Life Insurance? 

Curious about the circumstances that make the most sense for you to get life insurance? Take a look at the following reasons you may or may not want to get life insurance.

You might need life insurance if...

• You earn money that your family depends on. Think about how your family would  get through each month if you died in an accident. Could they make ends meet without your income? If not, you need life insurance.
• You have a mortgage. How much do you have left to pay on your mortgage? You may want to get life insurance to cover the remainder.
• You care for dependents. Do you want to send your kids to college? Do you pay for daycare expenses for your youngest child? Remember that dependents may not just involve your children — an aging parent may require your care.
• You own a small business. An insurance payout will help with expenses to either close your business or continue it in your absence. 

You might not need life insurance if...

• You have no debt. Most people buy life insurance policies to cover debt. However, if you have no debt and items like college tuition have been taken care of, you might not need life insurance. 
• You have no dependents. If you don't have kids or if you have fully-grown kids who support themselves, you may not need life insurance.
• Your savings can cover your final expenses. If you have significant investments that can cover everything you owe money on, you may not need life insurance. However, remember that in the case of retirement accounts, your surviving spouse can collect all of your retirement benefits only if he or she has reached full retirement age.

What Are the Steps for Buying Life Insurance?

Learn the steps to get your own policy.

Step 1: Determine how much coverage you need.

Sit down and do some figuring. Understand what you owe, your financial obligations to your kids and elderly parents or other family members. Figure out how much you want to leave to your beneficiaries. Don't forget to determine how much other coverage you have, possibly through your job. (However, remember that if you get too sick and have to leave your job, you will no longer get coverage through your employer.)

If you total up the full amount of coverage you need and find out you'll need upward of $1 million or more in coverage, that's not unheard of. College costs, your mortgage, covering your salary and more adds up to a lot of money.

Step 2: Get a quote from up to five carriers.

Insurance companies spend time determining how "risky" you are based on family history, age, occupation and other risk factors, such as whether you smoke or drink. Each company will weigh each risk differently, so get a variety of quotes so you have choices between each one.

Step 4: Read the fine print.

Check out limitations and exclusions in your policy. In some cases, your case could stay in review for years while your insurance company makes sure an illness didn't go unreported when you signed up for your policy.

Step 5: Purchase your policy.

The only step left involves purchasing your policy. Choose the best policy for your needs and budget.

Find the Right Life Insurance for You

Your risk factors affect how much you could pay for a life insurance policy. Some companies don't require a physical health check but could include dozens of exclusions and limitations. 

If you just want to feel better knowing that your loved ones will benefit from your great planning and feel cared for when you die, you might want to purchase life insurance.