Life Insurance: Does Everyone Need It?

Posted by Amy Henretty, CPA

Life Insurance Planning - Delaware CPA Firm

Life insurance can benefit individuals and their families in numerous ways. Having life insurance coverage plays a major role as part of a sound financial plan. Most people in this country consider life insurance a necessity, yet not everyone has coverage. Accordingly, is having life insurance a necessity for everyone or are there certain individuals who do not need any coverage at all? The answer to that question, should be determined on an individual basis depending on your family situation and personal wealth. If somebody will suffer financially when you pass away then the probabilities are you need life insurance to provide income to your family after your death. The death benefit your loved ones receive from life insurance can help not only with your current financial obligations, but also helps with funeral costs and your future expenses, such as college tuition for your children. Listed below are some different circumstances to help in determining whether life insurance applies to your particular situation.

Married with Children

If you are married with children who still depend on your income to survive, it is crucial to have life insurance coverage. Most families could not comfortably live after losing a spouse’s income source. Life insurance will help to cover the costs of your daily bills, food, clothing and your family’s future expenditures. It is important to consider life insurance for not only working spouses but for stay-at-home parents as well. Child care and household chores are significant tasks that life insurance coverage can assist with in assuring the quality of home life.

Married with No Children

Although you may have no children, life insurance can still be essential to you and your spouse. Some people mistakenly believe that you do not need life insurance if you don’t have children. However, you must ask, will your spouse be able to live comfortably without your source of income? Additionally, if you do plan to have children in the future, it is especially important to get life insurance sooner rather than later. Not only will the rates be cheaper without children, but some companies do not issue policies to pregnant women.

Single Parent

This is another situation where it is critical to have a life insurance policy. As a single parent, you are responsible for keeping up the house, taking care of your children and bringing in the income. With so much responsibility as a single parent it is vital that you make sure your children will be financially stable now and in their future.

Married with Grown Children/Retired

It depends on you and your spouse’s current financial status as to whether or not you need life insurance coverage once your children are grown and securely living on their own. If you and your spouse have accumulated adequate assets and have a sufficient income flow in which you can independently sustain for yourselves, then a life insurance policy may be unnecessary. Nevertheless, although you may no longer support your children and you have substantial savings, a life insurance policy can be beneficial for tax purposes because it can be used as a charitable contribution. By donating your life insurance policy you can take a charitable income tax deduction for the initial donation as well as any future premiums you pay. Something also important to take into consideration when you are a retiree is the size of your estate. If your estate is large, you could owe estate taxes upon death. The proceeds of life insurance are received immediately at death and accordingly can be used to cover the cost of the estate taxes and funeral costs as well, taking the burden off your heirs. Generally, life insurance proceeds are not taxed, and if structured correctly, will not add to your estate tax. Furthermore, if you plan to give your entire estate to a charity, you can use life insurance as a wealth replacement for your children. If you plan your estate this way, you can benefit both the charity of your choice and your loved ones.

Small Business Owners

Life insurance policies are a great benefit for business owners. Life insurance coverage can help pay off business obligations if you pass away and can help your successors to the business pay off estate taxes. Another nice benefit to life insurance policies for business owners is the ability to fund a buy-sell agreement. This type of agreement guarantees that the ongoing business owners have the funds to buy your share of the business if you pass away. It also ensures that the owners get the business and your family gets the money. In addition, there are other forms of business life insurance, for instance key person insurance. This type of insurance coverage provides the owners with the financial support necessary to either hire a replacement or a substitute arrangement if a key employee passes away.

It is important to determine if you are in a position in your life where life insurance would be beneficial for you and your family. Life insurance coverage protects your family from the unknown and supports them through a difficult time of loss. It is important to determine the tax benefits that life insurance coverage can have for your business and when planning for your estate. For tax planning opportunities please contact one of our tax professionals for additional advice.

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