I get this question all the time from people who are trying to figure out their financial priorities: “Do I actually need life insurance?” It’s a fair question, especially when you’re juggling mortgage payments, retirement savings, kids’ college funds, and everything else that comes with building a secure financial future.
For a complete overview, see our comprehensive term life guide.
The honest answer? It depends on your specific situation. But let me walk you through how I help my clients think about this decision, because there are some clear guidelines that can help you figure out if life insurance makes sense for your family.
Who Actually Needs Life Insurance?
In my experience working with families across different life stages, life insurance isn’t for everyone—but it’s essential for more people than you might think.
You likely need life insurance if:
- Anyone depends on your income to maintain their lifestyle
- You have debt that someone else would inherit (like a mortgage)
- You want to leave money to children, grandchildren, or charity
- You own a business with partners or key employees
- You have estate tax concerns (though this affects fewer people after recent tax law changes)
You might not need life insurance if:
- You’re single with no dependents
- You have enough assets to self-insure
- Your children are financially independent adults
- You have no debt and significant savings
The key question I ask my clients is this: “If something happened to you tomorrow, would anyone face financial hardship because your income disappeared?” If the answer is yes, life insurance is worth considering.
How Much Life Insurance Do I Need?
This is where I see a lot of confusion. Some people think they need millions in coverage, while others assume a small workplace policy is enough. The reality is somewhere in between for most families.
The Income Replacement Method
The most common approach is to replace your income for a certain number of years. A general rule of thumb is 10-12 times your annual income, but I’ve found this doesn’t always tell the whole story.
For example, if you make $75,000 a year, this formula suggests $750,000-$900,000 in coverage. But what if you have young children who’ll need 20 years of support? What if you have a mortgage that won’t be paid off for 15 years? These factors matter.
The Needs-Based Method
This approach looks at your family’s specific financial obligations:
- Outstanding debts (mortgage, car loans, credit cards)
- Children’s education costs
- Final expenses and burial costs
- Emergency fund for your family
- Income replacement for a specific time period
When I sit down with a client, we typically build a spreadsheet that accounts for all these factors. It gives us a much clearer picture of actual insurance needs.
Don’t Forget About Inflation
One thing many people overlook is that $500,000 today won’t have the same purchasing power in 20 years. If you’re buying term insurance for a long period, factor in some cushion for inflation.
What Type of Life Insurance Should I Consider?
This is where the conversation gets interesting, because there are several different types of life insurance, each designed for different situations.
Term Life Insurance
Term life is pure insurance—you pay premiums, and if something happens during the term, your beneficiaries receive the death benefit. It’s typically the most affordable option for young families who need maximum coverage for the lowest cost.
Term life works well if:
- You need coverage for a specific time period (like until kids are grown)
- You’re on a tight budget but need substantial coverage
- You have temporary debts like a mortgage
- You’re just starting to build wealth
Common term lengths:
- 10, 15, 20, or 30 years
- Level premiums during the term period
- Coverage typically decreases or becomes expensive after the term ends
Permanent Life Insurance
Permanent life insurance includes whole life, universal life, and indexed universal life. These policies combine life insurance with a cash value component that can grow over time.
Permanent life might make sense if:
- You have a permanent need for life insurance (like estate planning)
- You want to build cash value you can access during your lifetime
- You’ve maxed out other tax-advantaged savings options
- You’re interested in strategies like the MPI approach for supplemental retirement income
The trade-off is cost—permanent life insurance is significantly more expensive than term, especially in the early years.
Do I Need Life Insurance If I’m Single?
Here’s a question I get from younger clients who don’t have families yet. The short answer is: probably not much, but there might be some situations where it makes sense.
You might want coverage if you:
- Have co-signed debts with parents or siblings
- Want to lock in lower rates while you’re young and healthy
- Have aging parents who might need financial support
- Own a business or have business debts
You probably don’t need much coverage if:
- You have no debt and no dependents
- Your employer provides enough coverage for final expenses
- You have sufficient savings to cover end-of-life costs
The key insight here is that life insurance gets more expensive as you age and develop health conditions. Some single people buy a small permanent policy in their 20s or 30s to lock in insurability for the future.
Life Insurance Through Work vs. Individual Coverage
Many people assume their workplace life insurance is sufficient, but I’ve found this isn’t always the case.
Workplace coverage limitations:
- Usually 1-2 times your annual salary (often not enough)
- Disappears if you change jobs or get laid off
- Limited control over the policy
- May not be portable if you become self-employed
Individual coverage advantages:
- You own and control the policy
- Can choose the coverage amount you actually need
- Stays with you regardless of employment changes
- Often more cost-effective for healthy individuals
My general recommendation is to think of workplace coverage as a foundation, not your complete life insurance plan.
When Life Insurance Doesn’t Make Sense
I want to be honest about situations where life insurance isn’t necessary, because I see people waste money on coverage they don’t need.
Skip life insurance if:
- You’re retired with no dependents and sufficient assets
- Your children are financially independent adults
- You have no debt and substantial savings
- You’re single with no financial obligations to others
The goal of life insurance is to replace income or pay off obligations if something happens to you. If those needs don’t exist, the money you’d spend on premiums might be better invested elsewhere.
Common Life Insurance Mistakes I See
After working with families for years, I’ve noticed some patterns in how people approach life insurance decisions:
Mistake #1: Buying too little coverage People often underestimate their family’s needs or only consider current expenses without thinking about future obligations.
Mistake #2: Buying the wrong type Choosing term when you need permanent coverage, or vice versa. The key is matching the insurance type to your specific situation.
Mistake #3: Waiting too long Life insurance gets more expensive with age, and health conditions can make you uninsurable. I’ve had clients who waited until their 50s and ended up paying significantly more.
Mistake #4: Not reviewing coverage regularly Your insurance needs change as your life changes. A policy that made sense 10 years ago might not fit your current situation.
Getting Started With Life Insurance
If you’ve decided you need life insurance, here’s how I typically guide clients through the process:
Step 1: Calculate Your Needs
Use the needs-based method to determine how much coverage makes sense for your situation. Factor in debts, income replacement, and future expenses.
Step 2: Determine Your Budget
Figure out what you can comfortably afford in monthly premiums. Remember, some coverage is better than no coverage.
Step 3: Consider Your Health
If you have health conditions, you’ll want to work with an agent who understands underwriting and can help you find the most favorable carrier.
Step 4: Shop Multiple Companies
Different insurance companies have different appetites for various health conditions and age groups. This is where working with an independent agent can save you money.
Step 5: Apply Sooner Rather Than Later
Once you’ve made the decision, don’t delay. Your health and age today are likely better than they’ll be next year.
- Determine your need by asking whether anyone would face financial hardship if your income disappeared tomorrow, considering dependents and inherited debts like mortgages.
- Calculate coverage using the needs-based method rather than generic income multiples, accounting for specific obligations like outstanding debts, children’s education costs, and final expenses.
- Consider life insurance essential if you have dependents, significant debt others would inherit, business partnerships, or estate planning goals.
- Skip life insurance if you’re single with no dependents, have enough assets to self-insure, or your children are financially independent adults.
- Factor inflation into your coverage amount since today’s benefit won’t have the same purchasing power decades from now, especially with long-term policies.
The Bottom Line on Life Insurance Needs
The question “Do I need life insurance?” really comes down to whether anyone would face financial hardship if your income disappeared tomorrow. If the answer is yes, then yes, you likely need coverage.
The amount and type of coverage depend on your specific situation—your debts, your dependents, your income, and your long-term financial goals. There’s no one-size-fits-all answer, which is why I spend time with each client understanding their unique circumstances.
What I can tell you is this: if you need life insurance, waiting rarely makes it cheaper or easier to obtain. Health conditions develop, age increases premiums, and life circumstances can change in ways that make you uninsurable.
The families I work with who are most satisfied with their life insurance decisions are those who took the time to properly assess their needs, shopped multiple carriers, and matched their coverage to their specific situation.
Finding the right life insurance doesn’t have to be complicated. As an independent agent, I work with multiple top-rated carriers and can help you compare options to find the best coverage at the best price.
Related Reading
- 10 Year Term Life Insurance: The Complete Guide
- 30 Year Term Life Insurance: The Complete Guide
- Decreasing Term Life Insurance: The Complete Guide
- Simplified Issue Term Life Insurance: The Complete Guide
Let me do the shopping for you. I’ll compare quotes from multiple companies and help you find coverage that fits your needs and budget—or help you determine if you actually need coverage at all.
