Your need for life insurance changes as your life changes. When you’re young, you typically have less need for life insurance, but that changes as you take on more responsibility and your family grows. Then, as your responsibilities once again begin to diminish, your need for life insurance may decrease. Let’s look at how your life insurance needs change throughout your lifetime.
Footloose and fancy-free
As a young adult, you become more independent and self-sufficient. You no longer depend on others for your financial well-being. But in most cases, your death would still not create a financial hardship for others.
If you are at a high risk for developing a medical condition later in life (i.e. diabetes), you may consider buying life insurance now, while you’re healthy and the rates are low.
If you have a mortgage or other loans that are jointly held with a cosigner, your death would leave the cosigner responsible for the entire debt. Your life insurance needs also increase significantly if you are supporting a parent or grandparent, or if you have a child before marriage. In these situations, life insurance could provide continued support for your dependents if you were to die.
If these concerns don’t apply to you, consider the earnings you could realize by investing the money you would have spent on life insurance premiums.
Going to the chapel
If both spouses contribute equally to household finances and do not yet own a home, the death of one spouse will usually not be financially catastrophic for the other.
Once you buy a house, the situation begins to change. Even if both spouses have well-paying jobs, the burden of a mortgage may be more than the surviving spouse can afford on a single income. Credit card debt and other debts can contribute to the financial strain.
Your growing family
When you have young children, your life insurance needs reach a climax. In most situations, life insurance for both parents is appropriate. Both spouses should carry enough life insurance to cover the lost income or the economic value of lost services that would result from their deaths.
Moving up the ladder
It’s important to review your life insurance coverage any time you leave an employer. When you leave your job, your employer-sponsored group life insurance coverage will usually end, so find out if you will be eligible for group coverage through your new employer, or look into purchasing life insurance coverage on your own.
Single again
Divorce raises both beneficiary issues and coverage issues. And if you have children, these issues become even more complex.
If you and your spouse have no children, it may be as simple as changing the beneficiary on your policy and adjusting your coverage to reflect your newly single status. However, if you have kids, you’ll want to make sure that they, and not your former spouse, are provided for in the event of your death. This may involve purchasing a new policy if your spouse owns the existing policy, or simply changing the beneficiary from your spouse to your children.
Your retirement years
Once you retire, and your priorities shift, your life insurance needs may change. If fewer people are depending on you financially, most debts have been repaid, and you have substantial financial assets, you may need less life insurance protection than before. But life insurance can still be used to pay your final expenses or to replace any income lost to your spouse as a result of your death (e.g., from a pension or Social Security). Life insurance can also be used to pay estate taxes or leave money to charity.
This material was prepared for Catherine B. Allen’s use. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information provided is not intended to be a substitute for specific individualized investments, tax planning or legal advice. We suggest that you consult with a qualified tax, legal advisor, and financial professional.
