Do I Need Life Insurance?

Since life insurance can serve two very different purposes–life insurance and estate planning–the answer to the question “Should I buy life insurance?” will depend on which purpose is appropriate for your stage in life.

Income Support

If you have a young family, term insurance is most likely the appropriate type of life insurance for your stage in life. Term life insurance is really about providing income support in case something happens to you. You should ask yourself, “How would my family get by if they didn’t have the sources of income I provide?”

Be sure to factor in any non-financial support you provide for your family that would require a professional to replace, such as do-it-yourself plumbing, legal services (if you’re an attorney), and so on. If you’re not around to take care of these matters free-of-charge, your family will need extra funds to pay professionals for these services.

We also caution our clients against rosy predictions that some heroic family member or other figure will sweep in to save the day and handle all of your family’s problems. While this is a wonderful thing to hope for, it’s much better to have some financial support locked in and legally committed for your family–something no one can back out of.

Estate Planning

For someone in their later years, with no dependents, but who wants to leave significant funds to their adult children or other non-dependents, permanent life insurance is more likely the appropriate type of life insurance. The question, in this case, becomes: “Should I buy life insurance to optimize the tax-treatment of the money I want to leave behind for the next generation?”

In this case, the answer will often depend on the nuances of our ever-changing tax code, which means the consideration really becomes a like strategic game, trying to chart the best course of action with what information you have to work with. Often this means finding ways to keep various options open before committing down one path or another.