Broker Check

Life Insurance – Is it Necessary?

May 13, 2020

There’s a common misconception that life insurance is only needed if one has dependents.  Makes sense, considering if one should die he or she would want to make sure children are taken care of financially. However, life insurance can be a useful tool to mitigate the risk of any financial hardship, whether with children or without. 

Some risks are only temporary including mortgage debt, college expenses, or income to continue raising a family. But other risks may include business continuity or estate planning needs.

Choosing the right type of insurance can be just as complicated as determining how much coverage is needed. It is important to have a discussion to identify your risks and explore options on how to mitigate those risks.  For some, self-insuring is an option (choosing not to obtain any insurance with the plan to pay out of accumulated assets or cash flow). For others, life insurance may provide the optimal benefit given the risk-to-reward trade off.

A useful exercise may be to create a spreadsheet and list all debts, expenses, and lifestyle needs that would continue even if you weren’t around.  This is a good first step in determining how much life insurance may be needed.

Every type of policy, whether a Term Policy or Permanent Policy, has benefits designed to meet certain needs.  The right type of policy will depend on not only your short and long-term risks but also cash flow available to fund the premiums.  Generally, the goal of life insurance is not to collect but to give the owner peace-of-mind.