Most people believe that life insurance is necessary only for those that have dependents. However, for those of us that do not have a spouse or children, is the policy really necessary? Although it will ultimately depend on your personal situation, don’t automatically dismiss the applicability of this type of insurance without further research. Those that have a mortgage or loans with a cosigner may want to consider their options.
Do single people need life insurance? Some do - you might not. The four considerations below can help you decide:
- Student loans – while Federal loans will be forgiven if the borrower passes, private loans with a cosigner will not. The cosigner (often a parent) will typically become responsible for the debt.
- “End of life expenses” - while you may not be married or care for any children, your passing will probably affect other people in your life. For example, consider your “end of life expenses,” and who will be responsible for paying off any medical costs and hospital stays, as well as funeral and burial expenses. Even if you have sufficient cash in your accounts, that money may not be readily available in time for the burial, depending on how you’ve titled your assets. With a typical burial averaging $7,000 or more, consider who in your life would be able to afford that, and if you want to burden those individuals with the incurred costs.
- Debts – personal debts like credit card balances or an auto loan will often be paid out of the estate. If the assets are insufficient to cover the personal debts, they will often be written off by the credit card company. However, if you have a co-signer, they will likely become responsible for repayment alone.
- Mortgage – an outstanding mortgage loan can be handled in a number of ways. While payments can usually be continued through your estate once you pass, your assets may be insufficient or there may be no reason to do so. If you purchased the home as an unmarried couple, how you titled the asset will be especially important. As we’ve already seen, in most situations the cosigner on the loan will become solely responsible for the payments. Depending on market conditions, they may be forced to sell at a loss.
If you think you may need life insurance, it is advisable to discuss your options with a professional and also look at what alternatives may exist, such as the retitling of certain assets. Whether you need life insurance and how much will ultimately depend on a number of factors, including which state you live in.
There are numerous life insurance policies available, many of which can get rather complicated. Should you decide to purchase your own life insurance, familiarize yourself with the basic types of insurance available. Term policies are called ‘pure’ life insurance, while others may have an investment or savings component to them, like variable annuities or whole life insurance. While each type of plan will have its own premium, be sure to understand what other fees may be involved.
Life insurance is not the right choice for everyone. As your personal situation changes, so might your need for insurance. For the present time, if you’re single and have a policy offered through work, or simply have no debts or dependents, with enough savings to cover “end of life expenses,” you may not benefit from a policy. Having life insurance is just one component to proper estate planning.
At Darrow, we help clients by assessing their life insurance needs and providing directional guidance on the subject as part of the estate planning process. Darrow Wealth Management is not an insurance agency, however, and therefore we do not sell insurance or recommend specific insurance products for purchase with a third party.