There’s no universal answer to the question of how much life insurance you need—or whether you even need it at all.
Your age and your circumstances are the defining factors, because in its purest form, life insurance is an investment in the financial health of the dependent members of your family.
Life insurance isn’t meant for the old to leave money behind or to cover their final expenses, although marketers may have you thinking otherwise. Its true purpose is there to care for those who are dependent on you and can’t earn a living or do not have access to other assets.
Life insurance basics
Let’s take a look at the three main types of life insurance and when they’re most appropriate.
- Term life insurance is a must for anyone who has dependents. This is particularly true if you have a non-working spouse or partner and/or dependent children. However, the non-working partner should have a policy as well, to cover expenses like childcare, transportation, house cleaning–services that non-working partners often perform that may be a burden on the surviving, working partner.
- Whole life insurance is an investment, but it’s one that rarely pays off because at some point your need for life insurance diminishes as your estate grows and you no longer have dependents. These policies can also be expensive and can restrict your available cash flow.
- Guaranteed universal life insurance is appropriate in some cases where you may have a dependent beyond the usual time frame, such as a special needs child who might need lifetime support. These policies will not build up any cash value, but the premiums are lower than those of a whole life policy.
An experienced agent or broker who represents a wide variety of companies is your best bet for finding life insurance and can help you get the best premium for your circumstances. Avoid contacting a number of different agents because you could end up with several applications at the same insurance companies, which can raise red flags. This is particularly important to avoid if you have a medical condition.