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Do I Need Life Insurance?

When you think about the important things in life, getting a consistent paycheck is one of them, right? There are bills to pay and mouths to feed. So, how would your family carry on if something were to happen to you?

You might think, Life insurance. But maybe you’re confused about the concept and wondering, Do I even need life insurance? Or maybe you don’t really know what it is, which kind is best, or how much coverage you need. Well, your questions around life insurance are understandable—everyone’s trying to sell you some! And you might be told you need it when, in fact, you don’t.

Let’s set things straight right now . . .

What Is Life Insurance?

First a quick recap about life insurance: It’s a contract between you and an insurance company that—in exchange for your monthly payments—guarantees a sum of money (we recommend 10–12 times your annual income) for your loved ones when you die.

You’ll hear about a lot of bells and whistles with life insurance—from child riders to savings accounts—but at the end of the day, the only job of life insurance is to replace your income when you die. Simple!

The beneficiaries who receive the payout (aka your family) will get peace of mind about some pretty important things—how they’re going to pay the bills, keep a roof over their heads, and put food on the table. This is starting to sound like an all-around winner.

Do I Need Life Insurance?

So, do you need life insurance or not? Is it worth it? In almost all cases, you probably do need life insurance. Other than those rare and awesome situations where someone has finished off the Baby Steps and become both debt-free and self-insured, most people need to have a life insurance policy in place.

With all of that being said, take a look at this list of life stages to see if life insurance is the right choice for you . . .

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When Should I Get Life Insurance?

If you fall under one or more of the following categories, you’re probably in the market for life insurance. But there are a couple of nuances, so pay attention. (We promise to spell it all out as simply as possible.)

1. You’re Young and Single

If you’re young and single, there’s no urgent need for life insurance—yet! After all, the only person you’re looking out for is you. No one else is dependent on your income for anything. Keep this in mind though: If you have the option to sign up for some free group life insurance through your employer, it’s a good idea. Why? Because it probably won’t cost you anything getting it through work. But if you’re weighed down with student debt (these days, unfortunately, it’s likely you will be) then a life insurance policy that will pay off your debt if something happens to you is a smart move. 

2. You’re Newly Married

Congrats, newlyweds! You’re about to start what is hopefully a long journey together, which may involve getting a mortgage at some point. Being married means you’re there for one another, through the easy and the hard. You’re both contributing to the partnership in some way. And if you’re busy paying off debt (not to mention a mortgage!) life insurance that will replace your income will protect your spouse if anything were to happen during the journey.   

3. You Have Young Children

Having young children or teens (we’re talking under 18) means you have dependents, which means you need life insurance. Your income covers the cost of childcare, school fees, medical bills and everything else they need. Protect this income with life insurance until your children are college age and able to support themselves with their own paychecks. A proud moment for them and you! 

4. You’re an Empty Nester

Let’s say you’re a couple in your 50s. The kids have left home and can support themselves—hooray! But you’re still paying off your mortgage while working toward your retirement. You need some life insurance to protect that income of yours. The untimely death of you or your spouse could leave the other with debt—and that’s the last thing either of you want the other to face heading into retirement.

5. You’re Retired

Just because you’re retired doesn’t mean it’s too late for life insurance if you need it. You could get a term life policy to cover you until your debts are paid off and you’re self-insured. Being self-insured means you’re debt-free and have enough in the bank to take care of your dependents if you died. Life insurance will cost you more if you’re buying it when you’re older, but a small term life plan won’t hit your pocket too hard.

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When it comes to the type of insurance you should buy, term life insurance is the best option. Remember, the only job of life insurance is to replace your income when you’re gone. And only term life insurance gets that job done without the extra cost of complicated investment options.

The length of your term (how long the coverage lasts) should be 15–20 years to cover the length of time your dependents will rely on your income.

It’s best to get life insurance earlier rather than later in your life (when it’s more expensive). Pro-tip: Avoid the mistake of taking out too little coverage. We always recommend getting 10–12 times your annual income. That way, your family can invest the payout and use the growth of that investment to replace your income year after year.

Don’t Leave Life Insurance Until It’s Too Late!

Whatever path you’re on, always remember that the younger you are, the cheaper it is to buy life insurance.

Still wondering about the wisest next step toward getting the right life insurance policy in place? We've got some ideas for you here:

Next Steps

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Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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