Life insurance might seem like a no-brainer investment that everyone should have, but that’s not necessarily the case. In fact, surveys indicate that 52% of Americans don’t have life insurance, and 38% don’t even want it. Why is that? This article will take a look at who should spring for that life insurance policy, and who should look elsewhere for investment opportunities.
Who should carry life insurance?
Life insurance can be a great way to ensure that loved ones are taken care of when you pass. The money can be used to pay off debts, pay for funeral expenses and other after-death costs, and even to leave a legacy. This could be anything from a charitable donation to paying for your grandkids’ college educations. The biggest reason to carry life insurance, though, is to ensure your spouse or dependents can continue to be financially comfortable in the event something happens to you.
To determine if life insurance is a smart choice for you, ask yourself these simple questions:
Do you have dependents?
If you have dependents of any sort, carrying a life insurance policy is probably a smart idea.
Dependents can mean several things:
- A spouse that doesn’t work
- Minor children
- Children that are still in college
- Parents or other family members that you’re taking care of
Basically, the idea is that if someone is dependent on your income to live, carrying life insurance allows you to continue to provide for them when you’re gone. It can allow your spouse time to grieve before needing to find work, or finish paying for school if you have kids in college. The death of a loved one is a difficult time for anyone, and a good life insurance policy can allow your family time to grieve without needing to worry about finances.
An interesting dependent that may not be immediately obvious is a business partner. The life insurance payout in this case can be used to purchase the portions of the business owned by the deceased so that operations can continue uninterrupted.
Do you have debts that your loved ones would have to pay off if you died?
Another scenario where life insurance makes good financial sense is if you’ll be leaving behind substantial debts that won’t be forgiven. Mortgages, vehicles, and student loans are some examples of large debts that can be paid off with a life insurance payout. This can alleviate a major source of financial stress for those left behind, and helps allow them time to grieve without worrying about drastic lifestyle changes.
Are you leaving enough money, or does your family have enough money to handle your funeral costs?
It’s not discussed very often, but dying is expensive. The average cost of a traditional funeral is $8,000-$10,000. These costs include the price of a casket, embalming, headstone, flowers, transportation, and facilities. This is not an insignificant amount, and it can be a major source of stress during an already stressful time. Having the money issues already taken care of can allow those left behind the time they need to grieve.
Alternatives to life insurance
Now that we’ve covered why you might want life insurance, let’s look at who might want to pass on it:
- Single people with no dependents. If you’re single and have no children, a life insurance policy may be less of a priority. That doesn’t mean it’s a bad idea, especially if you have family members that will need to cover your after-death costs and may need help. However, it may make more sense to invest those insurance premiums into an IRA, 401(k), or similar investment strategy. For more personalized recommendations, it’s best to talk to a financial planner that can look at your particular life situation and give specific advice.
- Retirees. It’s no secret that as you get older, life insurance premiums can skyrocket. If you’re of retirement age, you may be better served by other types of investments. For example, if you want to make sure your grandkids are covered for college, a 529 Plan may be a smart choice. Again, a financial planner can provide more specific recommendations for each individual situation.
- College students. College students, even those that are otherwise supporting themselves, may still be eligible for coverage under their parents’ policies. If this is the case, having your own policy isn’t necessary.
You may also want to opt for other types of investments if the investment amount is especially large, or if you’re in a position financially that your dependents will be taken care of without needing an on-death payout. In these cases, more traditional investments like an IRA or a Roth IRA may provide a better return for your money.
Whatever your life situation, it’s never a bad idea to reevaluate your investments. Discuss life insurance and alternatives with your financial advisor to make sure your money is working for you in the most effective ways possible.
Kendra Madsen is a freelance writer who loves healthy living, the outdoors, and obsessing over plants. Having worked in the insurance industry for two years, she enjoys writing articles that help people navigate the complicated landscape of healthcare. When she isn’t writing, Kendra can be found exploring the mountains with her puppy or curled up at home with a good book.