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10 Obvious and Not-So-Obvious Reasons Why You Need Life Insurance


Who needs Life Insurance?

Like many others, you may be asking yourself, “do I need life insurance?” Well, here is a list of reasons that should help you answer that question. In my previous post, I provided a few scenarios that warrant Life Insurance for you to nibble on.

Basic life insurance

Now it’s time for the main feast! In this post, I’ve put together a list of obvious and not-so-obvious reasons to buy life insurance.


Ten reasons why you Need life insurance

  1. Two-Income Households: If the surviving household member is likely to experience financial hardship, then there may be life insurance need there.

Next step: 

Note the total annual income you wish to supplement. Such as salary, commissions, bonuses, yearly raises, etc. This is also a good time to reference any debts you’d like paid off in addition to income replacement.


2. Stay-at-home spouses: Yes, a policy on the spouse that stays at home. This scenario often gets overlooked because most households tend to focus on the need to replace income.

Best life insurance companies for families

To say a stay-at-home parent is valuable is an understatement; they’re invaluable and basically work round the clock. But in case you need numbers to put this into perspective for you. According to salary.com, “The median annual salary for stay-at-home moms in 2021 is $184,820.”

Next step: 

Create a list of the duties you wish to continue and will likely need to outsource.


  1. Parents with minor children or special needs child(ren) regardless of age: For parents with minor children or special needs child(ren), life insurance offers assurance that financial support will be in place until they can manage independently. This security is extended for disabled children who may require lifetime care.

Next steps: 

Start with researching the level of care you want your beneficiary to have access to. Once you narrow that down, note the expenses associated with it. 


  1. Joint property owners: This applies whether the co-owners are married or not. If one owner is likely to experience financial distress due to the passing of the other owner, then a life insurance policy may be a good safety net to have in place or, at the very least, explored.

Next steps:

Be sure to account for other home-related expenses in addition to the mortgage. Additional items to consider are property taxes, insurance, routine upkeep, & more. Don’t forget to consider any maintenance needed down the road, such as a new roof, furnace, etc.


  1. Children: In my previous post, we discussed the cost of life insurance and how age is a significant factor that comes into play regarding the premiums. Some parents may want to lock in a low premium for their child. This is also a good example of when a paid-up policy may be suitable. 

Next Steps:

If the reason behind the policy is so that your child doesn’t have to worry about obtaining a policy later in life, then be sure to compare:

  • Death benefit amount(s)
  • The length of time premiums must be paid ranges anywhere from 10 years, 20 years, or for the life of the policy.

*If you intend on utilizing the policy as an alternative investment or savings vehicle for your child, then be sure to understand the growth aspects, the cost of insurance, and how those items can affect the policy’s growth and it’s terms.


Additionally, make sure to educate yourself on how policy distributions are taxed.


  1. Families who can’t afford final expenses: Nobody likes to spend time and energy on such a bleak subject, but it’s an unfortunate necessity for most.

Next step: Start considering the expenses associated with your final wishes.

Examples: Ceremony expenses, burial expenses, medical bills, etc.

Final expense insurance

  1. Business owners or Businesses with “key” employees: A business or institution may have an insurable need if the death of an owner or employee causes financial hardship or complications for business operations.

Next Steps:

Consider areas your employee is a crucial contributor to and note the time and expenses required for business operations to continue smoothly.

Examples include the time and cost of hiring a replacement or subcontractor. 


  1. Health concerns: Some may have concerns regarding health conditions they may inherit down the road, such as diabetes, cancer, or heart disease that run in the family. 

Next Steps:

Narrow down your primary objective(s) for the policy. Familiarize yourself with any built-in features that the life insurance product may offer. Be sure not to overlook customization options such as a “guaranteed insurability rider” or any other rider that may suit your needs. 


  1. Estate taxes: Life insurance is a powerful tool to use during estate planning to mitigate estate taxes and retain the estate’s total value.

Next step: Be sure to update your advisor regarding your life insurance plans. If able, it’s best to include them in meetings with your insurance agent/broker to ensure you have a cohesive strategy.

Estate life insurance

  1. Legacy aspirations: Some may want to leave a nest egg behind for their loved ones. Depending on the insured’s overall objectives, a life insurance policy can be a pivotal player in helping accomplish those goals.

Next steps: What options do you have to assist you with this goal? Will you have to rely solely on a life insurance policy, or do you have investment assets that can be allocated toward this goal?

Ask yourself if there is a minimum amount that you absolutely wish to leave behind for your beneficiaries. Starting with a minimum amount can help you determine how much you need to insure or even need insurance.

Depending on the portfolio and remaining time horizon, some may end up finding that there is a strong probability that their portfolio by itself can likely accommodate their legacy aspirations by simply adjusting their portfolio’s asset allocation or strategy.

On the other hand, some may find a combination of both a life insurance policy and their portfolio is the best strategy to accomplish their goals.


Qualifying for Life Insurance

Underwriting guidelines for Life Insurance vary between each carrier. Some companies use an automated system to initially underwrite applications.

Then, depending on the application, insureds may receive instant approval for a policy, or the system may send the application to be manually underwritten. 

Most automated systems are only applicable for term policies or permanent policies with a death benefit on the lower end of the spectrum.


Takeaway

As mentioned in my latest annuity post, life insurance companies now offer some pretty innovative life insurance products with different underwriting guidelines than traditional ones. So it’s important not to assume that you’re “uninsurable,” especially if you have discovered that you may need a life insurance policy.

Once you have your needs narrowed down, check out my next post(s) below.


Disclaimer: The opinions expressed in this blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security, investment, or insurance product. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice.


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