Do you need life insurance (depending on your age)?

Typically, you need life insurance if you have dependents who depend on your income. However, there are reasons to buy life insurance even if this scenario doesn’t apply.

You may be at the age where you’ve never had to think about life insurance. Or maybe you’ve thought about it several times, but you’re too overwhelmed by the options, industry jargon, and potential costs to know where to start. Let me just say: you are not alone.

Life insurance is a good move for everyone from your single friends to your rich neighbors. So, let’s start with the basics.

A life insurance policy sets out the terms of an agreement whereby your insurance company will pay a sum of money to whoever is named as your beneficiary if you die while the policy is in force. In exchange for this final payment, you pay the insurer a monthly premium for the life of the policy.

That sounds like a lot, but the bottom line is this: You pay the insurer now to secure a payment later. As a result, you now have peace of mind and your loved ones receive financial support later. Where it gets complicated is choosing the type of life insurance you want, estimating how much you need, and generally gathering all the information needed to apply.

There are two basic types of life insurance, term and whole life.

Term insurance covers you for a set period of time, say 10 or 20 years, and during that period you will make a set monthly payment. If you die during the term, the life insurance pays the death benefit. If you don’t, the policy expires after the period ends. This type is suitable for most people.

Whole life insurance is more complicated. Whole life covers you for your entire life in exchange for a monthly premium. However, it is much more expensive and the additional premiums accumulate in what is called “cash value”. This cash value can be used for a number of reasons, including paying for future premiums and enabling you to get a loan against the policy.

Most people will find the best value in lifetime. Whole life costs more and has terms like a cash account that most policyholders never need and will never use.

To learn more, here’s a deeper dive into the differences between term and whole life insurance.

To figure out how much life insurance coverage you need, you’ll need to figure out what your family would need if you were to pass away.

It’s common to have life insurance that provides some cash for living expenses until the youngest child reaches adulthood, enough to pay off the house and often enough to send the kids to college.

For example, someone who wants to provide $4,000 a month in income for 10 years, pay off their $220,000 mortgage and provide $50,000 for college would need a policy for $750,000.

If you’re not sure, a “back of the envelope” method is to get 10 times your annual salary in coverage.

Once you figure out the amount, you’ll want to decide how long you’ll need coverage for. Often, people want coverage until their youngest child reaches adulthood, but your specific situation may be different.

Learn more about how to calculate how much life insurance you need.

You probably know that insurance companies base life insurance premiums almost exclusively on your age. However, other factors play a role, such as gender, weight, medical history, family health history, and whether you use tobacco products.

Your premium is also affected by the type of policy you choose and the coverage you want.

Consider this breakdown of term life insurance costs by age and gender:

Generally, the older you are, the higher the premium simply because you pose a greater risk for the insurer to have to pay death benefits to your beneficiaries. Fortunately, there are a number of affordable options that can meet your needs at any age.

No two life insurance policies are alike because we all have unique needs based on who we are and what happens in our lives. But how do you know what you need? And what should you consider even if you think you don’t need it? Here are some things to consider based on your age group.

This is when you are most likely to need life insurance. Your 20s and 30s are when you’re more likely to be taking care of a family and haven’t had much time to accumulate much wealth. So if you died, your family could be in a very tight spot.

Fortunately, the younger you are, the cheaper life insurance will be. Buying life insurance while you’re young and healthy is beneficial for another reason besides price. Certain health conditions can make you uninsurable. If you are diagnosed with one of these conditions during your lifetime, you will not be able to purchase life insurance at all.

So, if you can afford it and know you’ll need it in the future, it might be a good idea to get life insurance now.

What if I’m single? Life insurance can still help protect your loved ones from the financial burdens (ie, pesky student loans) that come with your death. Even if you are not partners, family members, charities or even business partners could benefit from your financial support in the event of your death. Plus, you might need it in the future, so better get it while you’re young and healthy.

What if I already have life insurance through my employer? Group life insurance is usually offered at little or no cost to employees. Often referred to as “basic” life insurance, coverage is automatically available to you (regardless of your health history), but amounts are usually capped at a low level (ie one or two times your annual salary).

There’s no reason not to sign up for group coverage, but I recommend getting supplemental life insurance as well. That’s because employer coverage doesn’t usually provide the same amount of coverage for your dependents, and your coverage is tied entirely to where you work.

Related:
10 Best Online Life Insurance Companies

As you grow older, you will likely accumulate additional assets. This could be wealth you have built up or a mortgage or other debts that should be paid off. You may also start to develop various health problems that will increase the cost of your life insurance. You should reevaluate your coverage as your lifestyle and family dynamics change.

What if I have no dependents? It may seem silly to take out an insurance policy with a death benefit if no one is around to receive the money after you pass. The thing is, most people end up with someone in their life that they want to support in the event of their death. And even if you don’t have dependents, you may have elderly parents who could use financial support to cover their care if you’re not around.

What if I’m independently wealthy? If you are wealthy, you may want to look at life insurance as a way to pass on your wealth. Tax laws favor life insurance: policyholders with up to $13.61 million in assets (individuals, more for married couples) in 2024 are exempt from estate taxes when they leave that amount to a beneficiary. Consult a tax professional to discuss your options.

If you don’t have a life insurance policy at this stage of life, you should definitely consider talking to someone about your options. Depending on your age and health, you may find fewer options and almost certainly incur higher premiums, hence the benefit of starting early. If your main concern is covering the costs of a funeral or memorial service, then you may only need a ‘final expenses’ policy. Designed for older policyholders only, this type of policy does not require a medical exam with application.

What if I am retired? Lots of changes in the pension. If you had group coverage through work, it ended either on or shortly after your retirement date. If you have supplemental coverage, you’ll want to consider either extending your term policy or converting it to a permanent policy to cover your expenses after you pass.

What if I already have a pension? Federal pension law requires that private pension plans continue to provide a pension to the surviving spouse of a former employee if the employee was earning a benefit. However, there are cases where your spouse or other dependent cannot receive your pension after your death. Because life insurance is meant to cover lost income, check the fine print of your retirement benefits and consider a supplemental life insurance policy to cover any gaps in your retirement income.

Related:
How does a life insurance payout if you die really work?

There are many benefits to having a life insurance policy that is well balanced between what you need and what you can afford. And, ultimately, how well do you want your loved ones to be cared for when you’re away?

The only time you may not need life insurance is if you have zero plans to have dependents (children or a partner) or get a mortgage and your estate can be settled with the assets in your name upon your death. However, unless you have unlocked some hidden talent, no one can see the future. Why not prepare now in case something changes down the road?