3 Types of People Who Definitely Need Life Insurance (and 5 Who Don’t)

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When I turned 25, my parents set up a meeting with their insurance agent to sign me up for a life insurance policy. I was single, with no kids or even pets, and barely making enough money to pay the rent.

I got the policy, but never understood it. A few years went by, and I let go of it.

Life insurance is a confusing topic. That makes a lot of us just want to ignore it completely. Do you understand the different types of life insurance?

“Consumer demand for life insurance is greater than actual ownership,” according to the 2018 Insurance Barometer Survey by LIMRA. In other words, we think we need it, but still don’t have it.

The same survey notes that 44% of millennials overestimate the cost of life insurance by about five times the actual amount.

OK, so it’s probably not nearly as expensive or as difficult as you think. If you want to see just how much it would cost you, take a couple of minutes to get a free quote online.

A company like Policygenius offers you an easy way for anyone to compare and buy life insurance online. The search engine allows you to compare policies and get instant quotes. Once you find the right fit, you can apply right there.

If you’re young and mostly healthy, consider purchasing term life insurance online from Ethos. It partners with a major A-rated life insurance carrier to provide policies for a low price. For example, $30 a month could get your family $1 million of coverage.

But… do you need it?

I asked three insurance pros to weigh in on the life insurance needs of eight personas I created. Does one of these sound like you? You may be surprised at what the pros have to say.

Illustrations of eight different personas who might or might not need life insurance.
Kristy Gaunt – The Penny Hoarder

Katy, 22, Recent Grad on a Bartender Budget

Katy is 22 years old and fresh out of school with a bachelor’s degree. She hasn’t found a career yet, but she’s keeping things together with a full-time bartending job. She rents an apartment and has no children. She’s living on a tight budget for now, but she’s hoping to land her dream job any day.

Someone this young can’t need life insurance, right?

That’s right, according to Mike Windle, a retirement planning specialist at C. Curtis Financial, Plymouth, MI.

“No need for term insurance as of yet,” Windle wrote in an email. “Term is best to either supplement income for a spouse that is lost, or to pay off large debts (i.e. a house). Without either of these there is no need.”

Quinc Pearcy, financial planner and wealth manager at Fort Wealth Management in Houston, Texas, sees some benefit to signing up for a policy early.

“A small term policy would fit [Katy] well and be cost effective. At her age, as long as she is in good health, life insurance would cost less than a night out to dinner,” Pearcy explained via email. “It doesn’t need to be a large policy but enough to cover things like outstanding student loans, car payments, credit cards and sudden death. None of us want to leave our parents with the burden of paying our outstanding debts.”

The verdict? Katy probably doesn’t need a life insurance policy yet, because no one is really dependent on her. But she may be able to lock in a good price by starting out early.

If that bit about student loans startled you, remember that many federal student loans are discharged if you die. If you have private loans or someone co-signed with you, your estate could be responsible for covering it.

Josh, 24, Starting Down the Career Path

Josh is 24 years old. He graduated with a bachelor’s degree and has found a salaried position within his field of choice. He’s making decent money, is not married, currently rents an apartment and wants to buy a home. He’s financially stable, but has not built up an abundance of savings or wealth just yet.

“Josh is on the cusp of fitting into the criteria of needing life insurance,” said Windle, “He should definitely get it through his work (typically two to five times his salary is what they offer, for a great price), but I would still hold off on getting term … If he waits until he buys his house he will also be able to be more accurate with the amount he needs.”

Pearcy sees benefits to Josh getting a policy now.

“Since he has steady income, it would be very easy for him to allocate enough money for a mid-size term policy. I would suggest a 10-, 20- or 30-year term to lock in the 24-year-old rate for the entire life of the policy.”

The verdict? Nope, Josh doesn’t need life insurance just yet. However, he’s in a good place to start looking at policies and maybe lock in a low rate. When he buys that house, it’s definitely time to get a policy.

Wesley, 28, A Newlywed With Big Plans

Wesley is a 28-year-old newlywed. He and his wife have no children (yet) but they are proud, new homeowners. Both Wesley and his wife work full time.

I would go big here,” said Pearcy. Wesley and his wife are both young enough, he said, “they would have no trouble qualifying for a large term policy. The amount would need to be enough to cover any outstanding debt: credit cards, mortgages, car notes, kids, college funeral costs.”

Windle agrees Wesley and his wife are in prime position for life insurance.

“Both Wesley and his wife should get insurance, again the first place is with their work (if offered) but with owning a home and relying on two incomes, it would be important they both have enough insurance to pay off the house and replace their income should one pass away.”

The verdict? Yes! With a spouse and a home, Wesley is firmly in the realm of those who need life insurance.

Dora, 31, Engaged Entrepreneur

Dora is a 31-year-old entrepreneur who owns her own bakery. She is engaged, has two dogs and no kids. She employs four people at her bakery.

Pearcy believes the business is a big factor for Dora.

“Without proper planning, the premature death of a business owner may result in assets having to be liquidated, the business being sold or the business becoming a burden on family members,” Pearcy said. “She must consider the four employees she has as they are dependent on her business for their income.”

“Dora is definitely a candidate for insurance,” Windle agreed. “She should have enough insurance to pay off her business debt and personal debt.”

The verdict? Yes. Dora’s business means she could have considerable debts and people counting on her. The dogs? She could even factor them in if she wanted.

Dan, 35, Homeowner and New Dad

Dan and his wife are in their mid-30s and are new parents to a baby girl. They own a small home. Each of them works full time making $50,000 to $70,000 annually.

“This is the most common client we see,” said Pearcy. “Married with kids and steady income. A lot to protect. I would build them a large 30-year term on both, as much as they can qualify for, with a child term rider for the new baby. The rider is inexpensive and means they do not have to buy her a separate policy.”

A child term rider is basically life insurance for the child of the primary insured person. As an add-on, it’s usually quite affordable.

Windle also sees Dan as a prime candidate.

Dan and his wife now have the added (financial) burden of a child so having insurance for each of them makes a lot of sense. By having $400,000 to $600,000 each, they should be able to ensure that their spouse and daughter will be taken care of should anything happen to them.”

The verdict? Oh yeah. These guys are right in the life insurance sweet spot. They’re young enough to get good rates, and have enough responsibility to really need it.

Gina, 36, Happily Single and Successful

Gina is 36 years old, single and happy about it. She owns a modest home she’s paid off. She’s been working full-time and making six figures since college. Her retirement fund is booming, and she keeps five months’ expenses worth of emergency savings in the bank.

Gina’s ability to earn and save on her own makes life insurance a lower priority, according to the experts.

“She sounds like she might be self-insured at the moment, but she has a couple of options,” said Pearcy.

By “self-insured” he means Gina has enough money saved to pay for an emergency or any costs after death. Instead, he thinks she could look towards her legacy, an amount of money she’d leave to a person or charity through a will.

“Being single, she does not need to cover legacy, unless she has a favorite nephew she wants to help pay for his college, or maybe she is active in her church and would like to leave them something tax-free,” he said.

The verdict? Nope. Gina has herself covered. However, she could look into life insurance as an alternative means for growing her wealth or providing a legacy.

Monica, 66, Recently Retired and Comfortable

Monica and her husband have recently retired. Their kids are grown with families of their own. They have adequate but modest retirement funds and own their home outright.

“A ‘second-to-die’ [policy] would be a great way to leave a tax-free (not tax-deferred) inheritance to their heirs,” said Pearcy. “Either spouse or both could get a ‘first-to-die’ insurance policy if an analysis showed the surviving spouse would need an additional lump sum of money to generate income.”

“This scenario is more about their legacy goals,” said Windle. “As far as replacing income and paying off debt, they don’t need insurance, but if they want a cheap way to leave tax-free funds behind to their kids and grandkids, then insurance can accomplish that.”

The verdict? No. Monica and her hubby are in a good place financially and don’t need the safety net of term life insurance. There may be some good reasons to look at getting a policy, but they don’t truly need it.

Rupert, 75, Living in Assisted Living

Rupert is 75 years old and living in an assisted-living establishment. He has one son who is in his 40s and is a successful business owner. Rupert’s only income is Social Security payments.

To Pearcy, this isn’t as clear-cut a scenario as it seems.

“This one is tough … unless Rupert or his son have the money set aside already for his funeral and burial, then a final expense policy would be necessary,” he said. “I would suggest the son pay the premiums and Rupert be the insured. Now, since the son is a successful business owner, he may have enough in savings to basically self-insure his father’s final expenses; in that case they would not need the policy.”

Windle is not in complete agreement. “Rupert should not waste any of his limited income on insurance. If his son is successful and Rupert doesn’t have enough assets for a funeral, then his son would be able to cover that expense.”

The verdict? Not likely. If Rupert’s son can take care of his funeral and any lingering expenses, Rupert should keep his money and enjoy life to the fullest.

How Much Life Insurance Do You Need?

If the thought of looking for a life insurance quote makes you cringe, I don’t blame you. How do you know the agent you speak to isn’t just trying to sell you the biggest policy out there, even if you don’t need it?

Here’s the good news. To get a life insurance quote, you don’t need to talk to an agent. Here are a couple of other great options for you.

Both Policygenius and Ethos offer you an easy way to buy life insurance online.

It never hurts to look into your situation and see just how much it would cost to be covered. Chances are, you’ll be surprised at how affordable it can be to sleep a little easier at night.

Tyler Omoth is a senior writer at The Penny Hoarder who loves soaking up the sun and finding creative ways to help others. Catch him on Twitter at @Tyomoth.

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This article contains general information and explains options you may have, but it is not intended to be investment advice or a personal recommendation. We can't personalize articles for our readers, so your situation may vary from the one discussed here. Please seek a licensed professional for tax advice, legal advice, financial planning advice or investment advice.