The Motley Fool’s Question of the Week: Life Insurance – Do I Need It?
by Efin Advisor | January 8, 2009
The Motley Fool’s U.K. bulletin board has asked plenty of brain teasing questions over the years. But this week’s installment takes the cake for pure common sense: Life Insurance – do I need it?
A single woman who has mortgage insurance protection writes: “I’m a single twenty-something with two properties, both of which are mortgaged. One is an interest-only mortgage, the other is a repayment mortgage. I have life insurance policies in place over both properties along with a benefit in work of four times my annual salary should something happen to me. I have no dependants and feel that I am perhaps a little over-insured. Ahh, so the question may not be so simple. is this person over-insured?
When do you need life insurance?
The Motley Foll has always been famous for cutting to the quick. In this case, the answer to “Do I need life insurance?” is straightforward. Generally-speaking if you have people in your life who depend on you financially — whether it’s your partner, your children or someone else — then it’s a good idea to take out enough life cover to provide for your family’s financial well-being should the worst happen to you.
Since this person doesn’t have any financial dependants right now, this is not a consideration. Still, before any policies are cancelled, she should think very carefully. There may not necessarily be an obvious need for life coverage right now, but that doesn’t mean a requirement for protection won’t arise in the future.
As Fool poster Joe Easedale commented: “It does look as though you have more life insurance than you may need at present. However, a thought for your consideration before you give some up. You will never be able to get life cover as cheap again, in that it costs more, the older we get. Therefore if you think that you may have offspring or a significant other to provide for in the future, keeping on what you have may take on a whole new value.”
Good advice from “across the pond.”
An interesting question. I think that life insurance is a valuable commodity even if you have no dependents. I bought some when I was much younger, and locked in the price. I made my parents the beneficiaries of my policy so that they would have money to pay for my funeral expenses and maybe a little extra, just in case the unthinkable happened Since then, my spouse has become my beneficiary- and I have increased the amount of coverage to accommodate new potential expenses. I would say that as long as you can afford to have the policy right now, keep it- it can only help you in the long run.
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If you have no beneficiaries, and are unsure what to do with the policy for the time being, there was some excellent advice several weeks ago on this blog about making a charity the beneficiary of your policy. Im not an expert, but I believe that there are several tax related benefits to doing so, in addition to the knowledge that you are helping those who are less fortunate than yourself. This is a great solution for keeping the policy in the mean time, to anticipate future needs for life insurance.
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I do not have any life insurance, because I have no dependents who could benefit from my coverage, and I did not see the need to invest in a plan at this time, but I think that there are some fantastic points raised here, which make me strongly reconsider my position. Perhaps buying a policy now in anticipation of the time when I will have people who depend on my is the best bet. I am young and in good health- these factors combined with the state of our economy today probably mean that I will never find a better price for life insurance. Buying today would truly be an investment in my future family’s future. I think that we all should consider tomorrows needs when we act today.
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I would imagine that at my age (im 22 right now) I certainly have no need to get life insurance. It may be cheaper and easier, but if its a term life insurance plan, its probably useless. If its not, I can probably figure out more effective ways of spending my money right now than on an insurance policy that I do not need. I could invest that money and if I invest well, I will make more money off that than I would lose by buying life insurance later in life. Obviously i fyou have dependents or large amounts of assets, life insurance can make sense, but it doesnt for me
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Sidney, I disagree. I’m an undergrad currently and as soon as I have an income, I plan on getting life insurance. If anything happens to me, which it could so I dont think the insurance is unnecessary as a whole, then my family is responsible for any student debt i have or lost income i can make in the future for them. Also, what if you meet someone special and get married and have kids quickly? You dont want to have to wait for the policy to come through. Planning ahead is essential.
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I guess this all depends on how much money you have available. If you can afford to start buying life insurance now, go for it. If you can’t, don’t. Its obviously important to get for the future, but when your really strapped for cash, it may make more sense to hold off on buying life insurance or more life insurance for when its not a rainy day.
I do kind of like the charity suggestion though.
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I think answering the question of whether you need life insurance comes down to one simple question:
“Does anyone rely on you for financial support?”
If you have people who rely on you for financial support, then you probably need life insurance.
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