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When Should You Get Life Insurance?


Life insurance provides a financial cushion to soften the blow when someone passes away. The decision of when should you get life insurance is a personal question, but generally it is when others depend on your income. Learn more about when you may need coverage and guidelines for how much life insurance you should buy. Buying life insurance should be part of your greater financial plan, and a professional financial advisor can help you create that plan while answering all of your questions. 

When Should You Buy Life Insurance?

People buy life insurance for many reasons, including to take care of loved ones, pay off debt or donate to charitable causes. Buying life insurance provides real financial benefits to your assets or loved ones after you pass away, so most reasons will fall into those categories. It also can be a way for you to leave behind a legacy or make sure that no one is burdened financially by your debts or burial costs after you die.

The right time to buy life insurance is immediate if any of the above-mentioned reasons apply to you. The purpose behind why you want or need, to buy life insurance is more important than the timing itself. Here are nine of the most common reasons why you should get a life insurance policy:

1. Getting Married

When you get married, you have another person to take care of or to consider with your finances. In many cases, your household budget depends on both of your incomes to pay the bills. Protect your marriage with a life insurance policy that replaces your income in the event that something happens. This is especially important if one spouse depends on the income of the other to meet their basic financial obligations.

2. You or Your Spouse Doesn’t Work

If only one spouse works, it is even more critical that the working spouse is covered with life insurance. It is also important to understand the value that the non-working spouse brings to the family. If either of you passed away, life insurance proceeds can help to cover the lost income from your job or to pay someone to cover the daily tasks of the non-working spouse.

3. If You Have Children

As a parent, you want to ensure that your children’s needs are covered no matter what happens. Life insurance provides financial assistance to cover the costs of raising a child. Some families also buy enough life insurance to pay for a college education so that their children are set up for success even after they become an adult.

4. If You Have a Mortgage

Buying a home is one of the largest financial decisions most people make. And with that purchase typically comes a large mortgage. Many homeowners protect their families with a life insurance policy that can pay off the mortgage or make the monthly payments if they pass away so that they don’t lose the home, or at least give them enough cushion to sell it.

5. When You Have Substantial Debt

when should you get life insurance

While a mortgage is typically your largest debt, most households have other debt obligations as well. These debts may include student loans, a car loan, credit card debt, medical debt and others. With the proceeds from life insurance, your heirs can pay off these debts and eliminate the monthly payments accompanying them. Reducing the monthly expenses also puts less of an ongoing burden on heirs to replace your income after your death.

6. Being a Business Owner

As a business owner, there may be additional debt burdens that you are personally liable for. Many small business owners must sign a personal guarantee when borrowing from a bank or another lender. A life insurance policy can cover those debts so the family does not have to pay them. Life insurance proceeds can also pay for expenses to keep your business running as your family decides whether to stay in the business or sell it.

7. Business Partnerships

When there are partners in a business, they may create a “buy-sell agreement” that covers many situations. One of the document’s sections dictates what happens if a partner passes away. A company-owned life insurance policy is often used to fund the purchase of a partner’s shares from their heirs so that the family of the deceased benefits and the partner in the business has the ability to keep business operations moving forward.

8. If You Want to Make Charitable Donations

If you feel strongly about a certain cause, you may allocate some or all of your life insurance death benefit to charity. This lump sum of cash provides a financial boost to the cause. In some cases, you may receive a posthumous award or recognition for your generosity. This can be a good way to leave something behind that is positive and can help others.

9. When You Need to Pay For Burial Costs

Paying for a funeral can be expensive. And, if you’re not prepared for it, these costs can add an extra burden to families that are already grieving your loss. Including burial costs into your life insurance policy is a smart decision that your family will appreciate.

How Much Life Insurance Should You Buy?

Knowing how much life insurance to buy is a difficult question for many investors. The general rule of thumb is 10 times your annual income, but that doesn’t always cover all of the other life insurance goals that you have. You will need to calculate the amount of life insurance that is right for you by thinking through each particular scenario.

In addition to replacing your income, you can assign a value to each of the items listed above and any others that are specific to your situation. If your budget allows, adjust the total to account for how inflation could increase the costs of many of these items. A financial advisor can also help you determine the right amount to get to take care of all of your estate planning needs.

The Bottom Line

when should you get life insurance

Life insurance is an important piece of your financial strategy puzzle. While today is the best time to buy life insurance, there are many situations when you should get life insurance to cover major life events. The right policy can replace your income when you pass away while covering those financial obligations and goals. Life insurance gives your family the financial help they may need after you are deceased, but it can also give you peace of mind while you’re living.

Tips for Getting Life Insurance

  • A financial advisor provides guidance on investments, life insurance, and other financial matters. Your advisor can help you determine your life insurance needs and discuss coverage options that fit your budget. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Knowing how much life insurance to buy can be tricky. Our life insurance calculator provides personalized policy recommendations based on your answers to simple questions about your income, debts and goals.

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