Do I Need Life Insurance?
If you support a partner, children or aging parents financially, you need life insurance. It gives you peace of mind while you’re alive, and financial security for your loved ones when you’re gone. Your family can use it to:
- Provide for your spouse or partner and children if you’re no longer there to support them.
- Replace the loss of income that could impact your loved ones financially.
- Cover funeral and end-of-life expenses.
- Pay for a mortgage to help keep your family in their home.
- Pay off debts you leave behind.
- Help cover future education costs for your children.
- Support aging or disabled loved ones.
- Provide funds to continue a small business once you’re gone.
How does life insurance work?
Life insurance is an agreement between you and your insurance company. You make regular premium payments, and the insurance company pays your beneficiaries a tax-free lump sum of money when you pass away.
Life insurance can make a huge difference for your family emotionally and financially. It shows your loved ones you care by giving them protection and financial well-being in the event you’re no longer there.
There are two main types of life insurance: term life and whole life. It can often be best to have a combination to handle short-term and long-term needs. Both offer a lump-sum payment to your beneficiaries in the event of your passing.
- Term life insurance protects you for a set number of years. Benefits are paid under in-force policies if the person insured passes away during the coverage period. As one example, it can be a good option for someone needing it only while there are dependent children. Learn more about term life insurance.
- Whole life insurance lasts your entire life. In addition, your premiums never increase, even as you age or face health issues. Whole life policies also build cash value, which you can borrow against for emergencies. Whatever you borrow is subtracted from the death benefit. Whole life is good to have when you want to help cover funeral expenses, remaining hospital or nursing home bills, or any end-of-life expenses. Learn more about whole life insurance.
How much does life insurance cost?
Life insurance is typically more affordable than most people think. Consumers tend to overestimate the cost of life insurance by nearly three times the amount. However, a 20-year term life policy for up to $500,000 in coverage for a healthy 30-year-old averages around $18 per month, or $216 per year.* Insurance companies use several factors to determine your rate, which may include:
- Your age. The younger you are, the lower your rate tends to be. That’s why it’s wise to buy life insurance as early as possible. The longer you wait, the greater the chance your rates will increase or you develop a health condition that could impact them.
- Your gender. Females tend to live longer, so they’ll typically pay less than males of the same age and health. Life expectancy in the U.S. is 79.9 years for women and 74.2 years for men, according to the Centers for Disease Control and Prevention.
- Your health. How healthy you are affects your life insurance cost. Pre-existing conditions, height and weight are all taken into account.
- Your family medical history. Serious health conditions among your parents and siblings, like heart disease, cancer or diabetes, also come into play.
- Your smoking status. Since smokers have a higher risk of developing cancer and respiratory disease, life insurance tends to cost more.
- Your driving record. Driving under the influence, speeding or causing accidents makes you a higher risk to insure.
- Your occupation and lifestyle. If you do hazardous work, such as construction or law enforcement, you can expect to pay more than someone with a desk job. The same goes if you regularly participate in risky activities like skydiving.
What’s the best age for life insurance?
That depends. What is life insurance for in your particular situation? Helping to pay for a mortgage or rent? Preparing for an emergency? Protection in retirement? Here are just a few times when life insurance can matter the most:
- When you’re young and healthy. The younger, and healthier, you are, the better your rate will be. And once you lock in a lower premium, it won’t change for the term of the policy − or even for life with a whole life policy. Purchasing life insurance when you’re younger can save you money over the long term.
- When you get married. Committing to a partner can bring up conversations about financial planning, property and more. Very often, a couple’s financial obligations are intertwined, and the loss of one income will impact the surviving spouse. If you’re engaged or relying on dual incomes, it may be best to get life insurance now.
- When you have a baby. If you’re thinking about expanding your family, you should look into getting life insurance as soon as you decide. If you’re already expecting, you can often lock in a better rate by applying early in the pregnancy. Even if only one of you is primarily responsible for your household income, you both should consider getting coverage. A common misperception is that only the parent working outside the home needs life insurance. It's important to consider the cost to replace all of the functions a stay-at-home parent performs in order to maintain your lifestyle if the unexpected should occur.
- When you buy your own home. Your life insurance policy can help your beneficiaries continue to pay the mortgage.
- When you have aging or disabled loved ones who rely on your income. This could be parents, siblings or adult children. Insurance to replace your income could supplement government- or employer-sponsored benefits that are reduced after your death.
Do I need life insurance if I don’t have dependents?
Life insurance may not seem necessary if no one currently depends on you financially, you have no major debts, and you aren’t sure what your future holds. But you may have more to protect than you realize. For example, if you have a private student loan that someone cosigned, a mortgage or a credit card balance, or only a small amount of savings, those you leave behind could be burdened with your debt if you were to suddenly pass away. Life insurance can help your beneficiary(ies) pay off these amounts.
And remember, the younger you are, the more affordable life insurance can be. Will you need coverage five years from now? Do you plan to get married or have children someday? Locking your premium in while you’re younger and (usually) healthier can save you money over time.
How much life insurance do I need?
The amount of life insurance you should have depends on the total income to be replaced and expenses covered to help meet the financial requirements of those you leave behind. Look at ongoing expenses like childcare, tuition, rent or a mortgage, plus medical bills, burial costs, inheritance taxes and other immediate needs. There are also long-term financial expenses your family may incur, like children’s education or your spouse’s retirement. Life insurance can help with them if you’re gone.
Experts generally recommend coverage that’s seven to 10 times your annual income. Use our needs calculator to figure out how much life insurance is right for you.
How does life insurance work from my employer?
Many employers offer a certain amount of group life insurance as a workplace perk, and subsidize some or all of the premiums. Often, you can buy additional coverage through your employer’s plan.
If your employer offers group life insurance, it’s a good idea to take advantage of it, especially if you have no other coverage. Be aware, though, that it applies to the employee only, not to a spouse or children. When trying to decide whether it’s enough protection, ask yourself these important questions:
- Does my employer-provided life insurance meet my needs?
- What happens to my employer coverage if I change jobs?
- Do I have plenty of coverage if my employer cancels their plan?
Multiple life insurance policies allow you to add coverage as your needs and financial goals evolve. It’s also cost-effective, because you’re paying for coverage only when you need it. Sure, more than one policy means more paperwork to keep track of, plus multiple premium payments. And you’ll likely pay more for policies added later in life. Still, the peace of mind while you’re alive and financial security for your loved ones in later years are certainly worth it.
Can I layer term policies?
Depending on which milestones you plan to reach in the coming decades, you may want a policy that covers one term length − 20 years, for example − to support your young family. And then a second policy that remains in place further into the future − like a 30-year term to help cover the mortgage should the unexpected happen to you.
Over the first 20 years, both policies are in force, giving you higher-level coverage during your core earning years. When the first policy expires, your total coverage decreases (because you no longer need it) − and so does what you pay in total premiums.
The good news is you don’t have to buy multiple policies all at once. You always have the option of layering additional ones in the future.
And once you buy life insurance, remember to check your coverage every few years to ensure it continues to provide the protection you need.
* Standard form number ICC15 FGCLT01-01 and FGCLT03-01 in most states and FGCLT10-04 in NY. Rate shown is our Preferred Platinum rate based on someone 30 years old and $500,000 for 20 years. Not all plans or features are available in all durations, and at all ages or in all states. Sex-distinct rates not available in MT. Amica monthly rates available via EFT (electronic funds transfer).
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ALIC87022 Jan-27