Email FacebookTwitterMenu burgerClose thin

Who Needs to Buy Life Insurance?


Life insurance helps protects family members and others against the financial impact of the policyholder’s death. While many people don’t have life insurance, it can be a good idea for many others looking to protect their family’s future. Primary earners with families, especially minor children and non-working spouses are among the best life insurance candidates, for example. Those with sizable debts or who wish to leave a financial legacy by supporting charities may also have good reasons to buy life insurance. To help you with all your insurance and financial decisions, talk to a financial advisor.

Life Insurance Ownership Basics

A life insurance policy is a contract obligating an insurance company, in exchange for a premium, to pay money upon the death of the policyholder. The payment of the benefit helps protects family members and others against the financial impact of the policyholder’s death.

Life insurance can be a boon to survivors and others, but not everyone has or needs life insurance. Just over half of American adults own any kind of life insurance coverage, according to the 2021 Insurance Barometer study published by LIMRA, a life insurance industry marketing organization.

Next time LIMRA does its annual survey, it may reveal that most American adults have no life insurance coverage. life insurance ownership rates have been declining for decades, with no end in sight. As recently as 2011, the figure was 63%. In 1989, 77% of American adults had life insurance coverage.

The decline in life insurance ownership is likely due in large part to shifting social, economic and demographic trends. However, despite the sweeping changes in American life in recent decades that have reduced life insurance ownership, reasons to purchase life insurance endure.

Top Reasons for Buying Life Insurance

do you need life insurance

The main reason people buy life insurance, according to a 2015 LIMRA survey, is to pay for funeral expenses. The idea is that the proceeds from the life insurance will cover burial costs so that surviving family members will not have to be burdened by the outlay. This reason is cited by a slight majority of life insurance buyers, a 2015 LIMRA said.

The next most important is to cover lost income. Just over a third of respondents to the survey said they bought policies with the express intent that the death benefits would be used to replace income lost if the policyholder died, allowing survivors to maintain their living standard.

Paying off debt, specifically mortgages, is the next most important reason. More than a quarter of policyholders who reporting being swayed by this argument for a life insurance plan for the death benefit to be used to pay off debts when they die. This can be particularly helpful in the case of someone whose spouse has co-signed loans. It can also protect an estate against attempts by creditors to collect money owed to them from the assets in the estate. In the event of a spouse or child with existing student loan debt, it can also be used to rid survivors of that burden.

Transferring wealth to the next generation is next among the top reasons for buying life insurance. Life insurance benefits can be used to pay inheritance taxes on large estates, increasing the after-tax amount remaining to be distributed among heirs. Like a will, the provisions of a life insurance policy can precisely specify which heirs will receive benefits and how much each will get.

Other Life Insurance Concerns

There are many different types of life insurance, and the varieties can have a number of uses. Life insurance can also be used as a way to create a post-death legacy. By purchasing life insurance and designating a charity as a beneficiary, a policyholder can provide important financial support to valued causes.

Business partners are among the most likely to benefit from having a life insurance policy. Many partnership agreements lay out terms of a buy-sell agreement calling for one partner to buy out the other’s share if the other partner dies. Funds to pay for the buyout can be provided by an insurance policy paid for by the company.

The Bottom Line

do you need life insurance

Life insurance exists to provide financial support to loved ones and others in the event of the policyholder’s death. Those who can best use life insurance include those with minor dependents, those with significant debt, those who want to plan to minimize estate taxes, those in business with partners and those who want to leave a legacy by supporting favored charities.

Tips for Getting Life Insurance

  • A financial advisor is an excellent source of information and advice about whether to acquire life insurance and how much insurance to buy. 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.
  • Deciding that you want life insurance is just the first question. The next is how much coverage to buy. SmartAsset’s free online tool uses your location, age, income and other variables to generate a recommendation for the correct amount of life insurance to get.

© Mitchell, © Mitchell, ©