Perhaps you’ve asked the question: Do I Need Life Insurance If I Am Single?
You may have run across a life insurance agent that told you that you always need life insurance no matter what stage of life you’re in. You might have even met with a life insurance agent and they pressured you to buy life insurance even though deep down your instincts told you that you really didn’t need it. So, what is the right answer?
In general, you only need life insurance if your death would cause a financial burden for someone else. There are cases when life insurance is needed for handling estate taxes, but that is a blog for a different day.
Therefore, if you are single and no one is dependent upon you financially, then you don’t really need life insurance right now. It’s really as simple as that.
A single person’s death usually does not create a financial burden for anyone else. However, if you are a single parent or are providing support for anyone, then you will likely want to have some amount of coverage.
IF YOU NEED INSURANCE, HOW MUCH DO YOU NEED?
The amount of insurance that you need can vary depending on who you talk to. In our experience, we generally find that a person will obtain coverage based on how much they can afford, not on how much they actually need.
For example, if a person only has $50 / month to spend, then they will only obtain the amount of life insurance that $50 / month will buy.
To determine the amount of insurance a person needs, a general rule of thumb is to determine the amount of income a beneficiary would need and divide by 5%.
For example, if a beneficiary needs $50,000 per year, then dividing this number by 5% would produce an insurance amount of $1,000,000. However this is very basic because it doesn’t take into consideration how long the income is needed for, cost of living increases, life expectancy, etc… As such, we generally would not recommend this method.
A more accurate way to determine the amount of insurance a person needs would involve reviewing their income, expenses, assets, investments, pensions, Social Security Statements, life expectancies, etc… Once we know this information, we can more accurately determine the amount of life insurance coverage needed.
Reasons to Buy Coverage Even Though You Don’t Need It
If you’ve determined that you don’t need life insurance coverage right now because you are single and because no one is financially dependent on you, there still may be reasons for you to obtain it now:
- If you expect (hope) to be in a relationship in the future then obtaining coverage today may make sense – but only if that person will be dependent upon you financially in the future. Obtaining coverage today can help you to potentially lock in a lower rate while you are younger and possibly healthier.
- If you plan to have children in the future then you may save money by locking in a potentially lower rate today versus waiting.
- Insurance is usually cheaper when you are younger. Therefore, if there is a chance that someone will be financially dependent upon you in the future, then you can possibly lock in a lower rate today.
- You may not be insurable in the future. If you are healthy today and in good shape, then obtaining a policy today will protect you in the event that you won’t qualify in the future due to an unforeseen accident or diagnosis. On the other hand, if you are unhealthy today and have aspirations to improve your health, you will likely find that insurance will be cheaper for you in the future even though you will be older.
- As mentioned above, if you have estate tax issues, then obtaining coverage may make sense. This doesn’t really apply to the vast majority of people in today’s environment because most won’t face estate taxes. Your estate must be greater than $12.06 million (if single) or $24.12 million (if married) in order for this to affect you.
I don’t know if you noticed, but the main theme above is that you may save money by purchasing life insurance now versus waiting until later. With that said, you may be wondering what the right type of insurance to buy is.
I won’t go into the different “types” here, but I will state that we generally recommend term insurance (insurance that lasts for a particular amount of time – 10, 15, or 30 years is most common) for the following reasons:
(1) It is much cheaper than the other forms of insurance out there and it leaves you with more money in your pocket to accomplish other goals you may have.
(2) Term insurance is much less complicated than other types of life insurance.
(3) When you buy term insurance, the price you pay is locked in for a 10, 15, or 30 year period; it will never go up.
Hopefully this blog post has helped you to better understand the role of life insurance for the single person. If you have any questions or comments feel free to leave them below.