Life insurance can step in to cover a lot of different needs. The bottom line is that if someone you care for will fall upon financial hardship if you were to pass away, you need life insurance.
Financial hardship could be anything from not being able to pay the mortgage, to pouring life savings into a funeral, or your child sacrificing further education when you had planned for them to go to University after school. Financial hardship can even mean simply not being able to maintain the sort of lifestyle you currently have. You might want life insurance to better the lives and futures of dependents after you’re gone or to leave a sizeable donation to a charity you believe in.
So who exactly needs life insurance? Below are a number of scenarios in which life insurance might apply.
Remember that, after you die, your family will be responsible for your debt. If you and your spouse both work, they may need to take time off work after your death. Your spouse will likely be used to a lifestyle which depends on both incomes, and is unlikely to be able to sustain that by themselves. Will they be able to pay off car loans, school fees, bond payments or rent, utilities, medical insurance and so on by themselves? If not, you need to take out a life policy to insure that they are protected against these eventualities, and can continue to live the lifestyle they are accustomed to if you should pass away.
If your spouse doesn’t work, you’ll still need to make sure you can provide for them so that they don’t have to take up employment following your death, particularly if they are unskilled or inexperienced in the workplace. This is especially true if they have been unemployed for a significant amount of time. If they do need to return to work, there may be additional costs associated with things like childcare and commuting expenses.
Another thing married couples should consider is that even if one spouse isn’t working, they may well still need life insurance. If your spouse was to pass away, would you be able to cover the contribution that they make in terms of household chores, driving children to school and activities, doing cooking and shopping, handling bills and finances and other general admin costs? If you couldn’t do it yourself and would have to pay a driver, cleaner, assistant, nanny or similar, could you afford this? If not, then your spouse needs to be covered to ensure that if they were to pass away, you could still take care of the family and the home in the same way.
A bond for your house is one of the largest liabilities in terms of debt and assets. The bank or lender who finances your loan wants to know that the payments can still be made – if not, the house will be repossessed and your dependents will lose their home, and face the possibility of having to pay a shortfall between what you owed and what the bank was able to recover through the sales of the property.
If you have other debts, especially ones that aren’t tied to assets that can be sold, you definitely need life insurance. If you are in debt your family will be liable for payments after your death, and a life policy can cover these.
It doesn’t matter if you are a single parent, a stay at home parent, a divorced parent or happily married with kids. If you have children who are financially dependent upon you, you need a life insurance policy. This money can go towards:
This one needs little explanation, but obviously those who earn the money in the house need life policies. Other members of the family often need them too, but the breadwinner provides financially. If you were to pass away, who would take care of your loved ones in a financial sense? If the answer is ‘I don’t know’ or ‘nobody’, then you should be insured. You want to leave a legacy for your family, even if the worst should happen. A life insurance policy ensures that your family will not suffer financially as a result of your death. This is even more relevant if you are a single parent – not only are you the breadwinner, there is nobody to take over if something were to happen to you.
Bottom line: Anybody who is the main financial earner and who does not have enough savings (10-20x your annual salary minus whatever savings you have is a good rule of thumb) to leave to surviving dependents needs to have the security of a life policy.
Many single people don’t take out life insurance. However, there some instances in which life insurance for singletons can be hugely beneficial. Perhaps you take care of aging parents, or have a sibling with special needs who will need caring for after your parents pass away? Maybe you are likely to become guardians of nieces or nephews. Or perhaps you already take care of siblings. In any of these scenarios, there are still people who would suffer financially should something happen to you, meaning that you could benefit from a life policy.
Another possible scenario is one where a single person has a bond, car repayments or other debts, or has co-signed for large purchases with siblings or other family members. In this case a lump sum payment will help family members pay off your debts easily, rather than potentially becoming liable for it themselves.
Even if you don’t have dependents and are totally debt-free, many people take out life insurance to pass on as a tax-free inheritance for children, nieces, nephews, or anyone you want really. You can even specify a charity as your beneficiary. If you want to be sure your grandkids can pay off their student loans one day, or can use the money as a deposit for a house, then your life policy payout can assist with this.