If you are single, with no children, and just starting out in your career, do you really
need a life insurance policy?
.Maybe so, if:
1. You have parents or other relatives who may need you when they’re older.
2. You have a significant amount of debt.
3. You want to leave a legacy, or at least not impose on others, after you’re gone.
Of course, there are other financial priorities early in adulthood, not the least of which are building a budget, setting up an emergency fund, and establishing a retirement plan. And many young adults are focused on growing wealth as quickly as possible as well. Life insurance could be considered of lesser importance in comparison. And for some, that may be true. But for others, maybe not. To be sure, a close look at individual circumstances is needed.
Will anybody need you in the future?
People are living longer. And, as they age, they may need support. Often that support, financial or otherwise, comes from their children or younger relatives, like siblings, nieces, or nephews. Indeed, MassMutual’s 2018 State of the American Family survey found that 18 percent of Americans with household incomes of $75,000 or more know that their parents are counting on them to become caregivers. Another study estimated that already in this decade about a fifth of millennials are financially supporting their parents.
Those surveys did not take into account other relationships, like aunts, uncles, grandparents, or even just a good mentor or friend. If you are likely to support or help parents or other relatives in the future with health care or other living expenses, you may want to consider life insurance to help cover those costs in your absence. (How much? Get a quote) “If you are or are going to be expected to be responsible for the care of an aging parent, you should consider purchasing insurance on yourself in the event that you are not here to do so,” explained J. Todd Gentry, a financial professional with Synergy Wealth Solutions in Chesterfield, Missouri. “Essentially, anyone who is reliant upon you financially — now or in the future — is a possible reason to buy life insurance.”
That includes business associates, be it a partner with whom you’ve started a venture or a close friend who supplied critical investment or seed money. Life insurance can help ensure your commitment to those people should the unexpected happen.
“Any entrepreneur needs both disability and life insurance,” said Douglas Collins, a financial planner with Fortis Lux Financial in New York. “How much depends on the structure of the business, the number of people involved, and how mature the business is.”
Will someone inherit your debt?
Did your parents cosign any student loans for college? How about any car loans or credit cards you took out? If you bought a home or other property, did your parents — or anyone else for that matter — help out there? Debt can get transferred to others, specifically cosigners, if you pass on, under many circumstances. And tax questions can arise too.
Take student loans. While federal loans can often be discharged upon the student’s death, private loans, particularly with a cosigner, often are not. Much depends on the terms of the specific loan involved. And when a loan is discharged, the canceled debt is viewed as income in certain circumstances, with tax due. (Learn more: What happens to your student loans when you die?)
Cosigners for other types of consumer loans will be responsible for the debt’s repayment as well. Likewise, a cosigner for a mortgage will be responsible for continuing payments. People helping people is part of the interdependence that makes everyone stronger. Parents, relatives, and friends helping you get a good financial start in life demonstrates this mutuality.
They know that eventually their love and support will provide benefits for all in the end. Unless the unexpected happens to you. Again, life insurance could help ensure the return of that mutual support if you are unable to do it in person.
Leaving something behind
Helping one another is at the core of our existence. We do it through actions and active support of family, friends, and our communities at large. And life insurance helps make it possible to after we’re gone as well. For instance, many people use life insurance to throw support to their favorite charities or schools. This can be done in a variety of ways, from making a charitable organization or college a direct beneficiary of a new policy to using certain types of insurance policies to make annual donations.
Another consideration: Options and value
At the same time, life insurance can help make sure you aren’t the charity case. The average funeral costs over $7,000 these days. Proceeds from a life insurance policy can help defray those costs.
The need for life insurance is one consideration. The type of life insurance to meet that need is another. And that consideration opens the door for other possible motivations for buying an insurance policy when you’re young and single: securing coverage at a lower cost than in your later years and providing financial options for the future. Life insurance tends to be less expensive when you’re young and healthy.
Experimenting with different numbers in this calculator makes the point. So there is the opportunity for securing a policy when, frankly, it’s more of a deal. This introduces the question of what type of policy is appropriate. Term insurance , which provides a death benefit for a specific period of time, tends to be less expensive than permanent insurance. This makes it useful for specific objectives like making sure a partner has financial help with a mortgage or business obligations, if necessary. Permanent insurance, like whole life insurance or universal life insurance , offers coverage through the end of your life and builds up cash value over time. That cash value offers a source of funds in the future for things like home down payments, business investments, or emergency funds. Some kinds of life insurance policies also offer the opportunity to earn dividends, although dividends are not guaranteed.
In addition, provisions called riders can be added to policies allowing for things like the purchase of additional coverage in the future. That could be useful should a family grow or commitments increase. Group insurance provided through an employer typically doesn’t offer such add-ons and lacks portability should you change jobs. ( Related: Is group life insurance enough?) “Remember, your group life insurance is great, but you should be in control of at least some of the life insurance,” said Gentry. “Own it, control it — don’t just count on your employer group benefit. It can change, you can move from one job to another. You need to be in control.”
Conclusion All this is to say that while being young and single may seem to imply that life insurance isn’t a high priority, there are circumstances that could run counter to the assumption. In addition, there are financial features certain types of life insurance offer that could provide useful advantages down the road. It depends on your circumstances and choice.