The other day I asked my boyfriend if he had a will. It popped into my head as we were driving. I was curious because I myself don’t have one. His response? "No, but I have a life insurance policy. So it’s kind of the same thing." This caught me off guard for several reasons. One: I was pretty sure that life insurance and a will are not the same thing (sorry, boo). Two: I wasn’t exactly sure what life insurance was. Three: I was impressed he actually did have one. And four: I didn’t have a life insurance policy. It certainly gave me pause to hear that my partner has a policy. I had all sorts of questions. What is life insurance? Should I get it? I’m not married and I have no children - do single people need it? How do I get it? I decided it was time to get my Lois Lane on and do a little research.
What Is Life Insurance?
First, I figured I should nail down what exactly life insurance was. I had the vague understanding it was "money for your family after you die." At least, that’s what television has led me to believe. Turns out, I wasn’t so far off. Life insurance is defined by Investopedia as such:
“Life insurance is a protection against financial loss that would result from the premature death of an insured. The named beneficiary receives the proceeds and is thereby safeguarded from the financial impact of the death of the insured. The death benefit is paid by a life insurer in consideration for premium payments made by the insured.”
Let me translate that into English. It’s money paid to your dependents, designed to help them handle the loss of your income. While working, you pay a certain amount every month to the company that holds the policy. In the case of your death, the money goes to your family. Simple enough, and a good idea. If your household only has one breadwinner and they suddenly pass, it could be catastrophic for the house’s finances. Life insurance can provide much-needed breathing room during an incredibly sad and stressful time.
Do You Need Life Insurance?
Now that we know what it is, we come to the big question. Who exactly needs life insurance? If you have a partner or a dependent like a child or a disabled family member, life insurance is a must have. You’re doing your family a huge favor by taking a policy out. Often life insurance ads tout themselves as selling "peace of mind." You’ll get no arguments from this writer. If people rely on your income, life insurance should be on the top of your to do list. For us single people though, it’s not as clear cut. In this case, I’m using single to mean unmarried and childless. Should we or should we not take out a policy on ourselves? One thing that should be made clear: if you genuinely don’t need it, it's fine to pass it up. It’s not fine if you pass because you don’t want to try and understand it, or you have to go all the way down to HR to sign up for it. I know for a lot of us who don’t make a ton of money, life insurance can feel like just another burden. You’re charged each month for a payout your dependents won’t see for years. You may feel like you need the money more TODAY than someone else will someday. As someone who loves being frugal, I get where you’re coming from. Every dollar that sneaks out of my bank account better be doing something really important. Just be honest with yourself about if you really need it or not. Read on to see if it might actually be a way better deal to get it today.
The Case For Life Insurance
Even if you’re single, there are a whole host of reasons you might want to consider life insurance. Here’s just a few.
You anticipate paying for your own funeral
If your family or friends don’t have the means to pay for your funeral, life insurance could be what you need. Funerals can be surprisingly expensive. The last thing people in mourning should have to worry about is being served a bill.
You own a business
It’s a tale too often told. Someone owns a business, passes away, and debts spring up from out of nowhere. Life insurance can help with those debts. It can also ease the estate tax burden that someone inheriting the business will face. The IRS does not mess around!
You’ve co-signed debt
If you’re an aunt/uncle/friend/neighbor who co-signed someone’s debt, life insurance is a very good idea. Much like the IRS, debtors don’t mess around. Student loan debt, a commonly co-signed form of debt, is particularly rough. That debt is almost impossible to shake. Life insurance can help pay it off, and won’t leave your child on the hook for the rest of their lives.
You have a large amount left on your mortgage
Homeowners who have paid off their homes might not need it. But if you have tens of thousands of dollars still to go? You might want to consider it. If you own a home and pass away with a large mortgage that your family can’t pay, they might become homeless. Life insurance can be used to pay that mortgage.
You have a chronic illness
If you have a chronic illness and doctor’s bills are a regular part of your life, you should get life insurance. It can be used by your dependents to help pay down medical debt.
The Case Against Life Insurance
Looking at the list above, it might feel like everyone and their Aunt Sally need a life insurance policy. But there are still some exceptions to the rule.
You have large and accessible assets
If you’re well off and at least somewhat liquid, you may not need life insurance. Your personal accounts may be enough to cover costs like medical bills or funeral costs. Be careful about where you’re leaving your money though - estate taxes are a real cost for those receiving inheritances.
No one will be financially harmed by your death
If there’s no one in the world who will be financially impacted by your death, life insurance may not be for you. Your assets will cover everything and you’ll leave behind no debts for someone else to sort out.
The Short Answer
As you can see, these two lists are pretty different in length. There seem to be a lot more reasons to have life insurance than to not. Ultimately, life insurance is personal. Do your research on this one. Life insurance mixes up your financial situation and your personal situation in a way that few other issues do. If you’re childless now but plan on having kids in the next few years, that should influence the decision you make today. (For example, a few companies won’t issue life insurance to pregnant women. That’s a whole other issue.) After all this research, I have to say that I’m motivated to get myself a life insurance policy. I do know that funeral costs can be astronomical, and I would hate to lay that burden at my family’s feet. Personally, I believe it to be a good investment for a single person. If I’m being 100% honest, I also know that I won’t get it until at least next year. I’m a freelancer, and it’s simply not in the budget right now. I’m leaning heavily on the fact that I’m single and in my 20’s at the moment to justify this waiting. (Youth, don’t let me down!) I’m also going to put off getting myself a will until next year. Life insurance is a good idea for most people. If your job offers it, you should probably sign up for it. Speaking very generally here, life insurance can be pretty inexpensive. It can save you and your loved ones a lot of headaches down the road. Carefully assess the life insurance needs and options in your life. Make a decision based on what’s best for your future self and family. Think about it from your loved one’s point of view, and make the decision with them in mind. This is, above all else, your decision to make.