Do You Actually Need Life Insurance? (Honest Answer)

I got so many targeted ads for life insurance in my late 20s that I started wondering if the algorithm knew something I didn\’t. Like was I gonna die? Should I be worried?

Turns out the algorithm just knows that\’s when people start thinking about this stuff. And also that life insurance companies make a lot of money. So here\’s my honest take on whether you actually need it.

The simple test

Would anyone be financially screwed if you died? Not emotionally – financially. Would they lose income they depend on? Would they be stuck with your debts? Would they not be able to afford the mortgage?

If yes, you probably need life insurance. If no, you probably don\’t.

That\’s really the whole thing. Everything else is details.

When you definitely need it

You have kids who depend on your income. This is the classic case. If you\’re providing for children and you die, they need that income replaced somehow. Life insurance does that.

You have a spouse who depends on your income. Same idea. If your partner couldn\’t maintain their lifestyle without your income, insurance fills that gap.

Someone cosigned loans with you. If you have student loans or a mortgage that someone else cosigned, they could be stuck with that debt if you die. Insurance can cover it.

You own a business with partners. Business life insurance is a whole separate thing but basically – if your death would hurt the business, there are policies for that.

When you probably don\’t need it

You\’re single with no dependents. This was me for a while. If I died, it would be sad, but no one was depending on my income. I didn\’t need insurance.

Your spouse could manage fine without your income. Maybe they earn enough, or you have enough savings, or both. The question isn\’t whether they\’d be sad – it\’s whether they\’d be broke.

You\’re retired with plenty saved. At some point your savings replace the need for life insurance. You\’re self-insured basically. This is part of why building up an emergency fund and investing matters so much.

Term vs whole life (this is important)

There are two main types and insurance salespeople will really try to sell you the expensive one.

Term life insurance covers you for a specific period – like 20 or 30 years. You pay relatively cheap premiums. If you die during that term, your beneficiaries get the payout. If you don\’t die, the policy expires and that\’s that.

Whole life insurance covers you for your entire life and includes a \”cash value\” investment component. Premiums are way higher – like 5-10x more than term.

According to NerdWallet\’s comparison, term is almost always the better choice for most people. The \”investment\” part of whole life has high fees and bad returns compared to just investing that money yourself.

The exception might be very wealthy people with complex estate planning needs. If that\’s not you, term is probably the answer.

How much coverage?

Common rule of thumb is 10-12x your annual income. So if you make $60k, that\’s $600-720k in coverage.

But honestly it depends on your situation. Think about: how much would your family need to replace your income for however many years? What debts would need to be paid off? What big expenses (like kids\’ college) would you want covered?

There are calculators online that can help you figure out a more precise number.

It\’s cheaper than you think

A healthy 30-year-old can often get a $500,000 20-year term policy for like $20-30 a month. It\’s not nothing but it\’s also not crazy expensive.

The younger and healthier you are when you get it, the cheaper it is. Waiting until you\’re older or have health problems makes it way more expensive (or even unavailable).

My situation

I didn\’t have life insurance for years because I was single and no one depended on my income. Now that my situation has changed, I have a term policy.

I went with 20-year term because by then my theoretical kids would be adults and my spouse and I should have enough saved. The goal is to not need insurance forever – just during the years when dependents actually depend on you.

Bottom line

Life insurance isn\’t for you – it\’s for the people who depend on you. If no one depends on you financially, skip it. If people do, get term life insurance for enough to cover their needs.

Don\’t let anyone talk you into expensive whole life insurance unless you\’re rich and have complex estate planning needs. For most of us, term is the answer.

And don\’t put it off if you need it. It\’s never fun to think about dying but it\’s way worse to leave your family struggling because you kept postponing an uncomfortable decision.