Considering Life Insurance

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Considering Life Insurance

When choosing life insurance, you should consider your life situation now and in the future and then ask yourself some questions.

Do you need life insurance?

Life insurance exists to protect other people who normally depend on your income. Although some forms of life insurance let you cash it in early for yourself if you so desire, it is not actually designed for you; it’s meant to be used by certain others after you die. Do you have any such people—children, a spouse, or any other dependents? If you have none, you probably don’t need life insurance. If you plan to have some dependents, then you should at least consider it. If you do have dependents, how much money would they need to survive, and for how long would they need it? Do they have additional sources of income, such as public assistance or investments?

Would they be able to afford costs related to your death, such as a funeral? What about any debts of yours? Normally, those would get paid out of your estate; does your estate have cash to cover these? If not, would your valuables and other property have to be sold off by your survivors to pay these debts? Could your survivors raise enough money from selling them? If the answers are likely to be "no," then you might consider a life insurance policy to cover your debts.

To what extent can you already afford to pay for expenses?

Considering the kinds of expenses that your survivors will be faced with is a good starting point for determining whether you need life insurance. Remember that some of these expenses may be the sort that is left behind by you. You can avoid the need for life insurance if you have some other means of meeting them. For example, you could set up a funeral fund, or you could donate your body to science and avoid most or all funeral costs. And you could specify in a will how to pay for any debts you have at the time of death.

If you have dependents such as a spouse and children, your situation will be trickier. You will need to forecast their expenses over many years and factor in inflation and unforeseen costs like medical bills. Whatever you cannot cover with the wealth they will inherit from you could be covered with life insurance. For many people, this is the reason they buy it.