Can You Afford Not to Have Life Insurance?

“Do I really need life insurance?” Financial advisors hear this question from clients all the time. A life insurance premium is yet one more regular expense that eats into your savings, and you may never see any benefit from your policy during your lifetime. If you’re looking to save money, your life insurance might be one of the places you consider making cuts. 

We wish we could give you a definitive answer about whether you can afford to go without life insurance. But like so many of the financial questions that come up for our clients, the answer really varies from person to person. Having life insurance is primarily about providing financial support for the loved ones who outlive you. Whether or not you need life insurance to achieve that goal depends on your unique circumstances. 

You may be able to skip life insurance if:

• You’re single with no dependents and little debt. People generally buy life insurance to provide family members with a replacement for their income, and to help their heirs pay for any funeral costs and/or debts. If no one but you relies on the income you bring in, and you’re not concerned about leaving behind significant debts for your loved ones to manage, you may be better off going without life insurance and investing your money instead. That said, single people with no dependents may still want to have life insurance so they can provide a death benefit for their adult children or other loved ones. 
• You’re retired and financially stable. You may or may not want to maintain a life insurance policy once you retire. Even if you have a spouse and other family members who rely on you for financial support, you may have already used estate planning to put aside enough money to cover their needs and your end-of-life expenses. Sometimes it makes financial sense for retired people to let their existing life insurance policies lapse and use their premium payments for some other purpose. 

You would probably feel more secure having life insurance if: 

• You have dependents. The birth of their first child is often the event that leads someone to buy life insurance for the first time. If you have a spouse, child or any other family member who relies on your paycheck, having life insurance could give them some financial security if you were to die prematurely. (A stay-at-home parent who doesn’t draw an income may also want to have life insurance; if that parent dies, the benefits can help cover childcare and other expenses.) With adequate life insurance, you can make sure that your family has a financial safety net just in case something happens to you.  
• You have a lot of debt. It may sound counterintuitive, but putting money toward a life insurance policy may be advisable if you have any significant debts—especially if anyone shares responsibility for those debts. For example, if your brother cosigned your mortgage loan and you die before paying it off, the lender may be able to come after your brother for the remaining payments. Naming him as a beneficiary of your life insurance could give him a payout that’s large enough to cover what you owe. Beneficiaries may also use life insurance payouts to cover funeral costs and sometimes even to help pay a decedent’s estate taxes. If the person was in financial distress when they died, their estate may not have enough money to cover all the necessary end-of-life costs. A life insurance payout helps.  

How much life insurance do I need? 

This is another of those common life insurance questions that doesn’t have a definitive answer. How much life insurance you need depends on a mix of factors, including what stage of life you’re in. A young professional may buy their first policy when they get married, then reevaluate their needs when they have kids and change their policy to secure more coverage. 

If you buy life insurance with the intention of covering your family’s expenses, the scope of those expenses matters too. How much money would it take to replace your income? How much debt do you have? How many people are you providing for? Do you want to get enough life insurance to cover future educational expenses for your kids? These are just some of the things we might talk about when helping clients think about how much life insurance they need. 

Making decisions about what kind of life insurance policy you want, and how much coverage you need, may be part of a larger conversation around estate planning. Even if you already have life insurance, it’s a good idea to reassess your coverage needs as you move through different phases of life. 

Whatever financial goals you have for your family’s future, Sachetta Callahan wants to help you meet them. We’re here to advise you on life insurance and answer any questions you have about creating financial security for your loved ones. Contact me today!

Joseph Sachetta, CFP®, CPA/PFS, MBA, MST, For over 40 years, Joe has worked in finance and accounting. He is a Certified Financial Planner, and a Certified Public Accountant. Joe’s passion lies with helping his clients strike a balance between living for today and saving for tomorrow.