A Personal Finance Blog for Malaysian: Who Needs Life Insurance?

Wednesday, January 12, 2011

Who Needs Life Insurance?

    Who Needs Life Insurance?

    Some people truly need life insurance. For others it is a waste of money. Let's look at some scenarios to see who does and does not need a policy.

    Let's say that you are a single man or woman living alone in an apartment. Do you need life insurance? No. Who, exactly, would be the beneficiary? There is no one in your life who is dependent on your income. The only reason you might buy life insurance is the same reason you would buy a lottery ticket - you might win. You might, after all, die young. And if you had a life insurance policy and you did die young you could make someone very happy. Or you might buy a small policy to pay your funeral expenses at death. In that case $10,000 is all that you would need, and that would be one nice funeral. There are probably better things to do with your money while you are alive. 
    Let's say that you are a single man or woman living alone in a house with a $100,000 mortgage. Do you need life insurance? Maybe. The reason you might buy life insurance is to save your parents (or whomever else you have willed the house to) the problem of disposing of your estate. For example, imagine that you die. Your parents (or whomever) inherits the house. Now they want to dispose of the house, but it sits on the market for two years before selling. During that time they are having to pay the mortgage payments, and that might be a hardship. Therefore you might buy a policy to cover the expected payments over (for example) two years, or the entire mortgage. 
    Let's say that you are a married man or woman living alone in an apartment or a house. Do you need life insurance? If your spouse does not work and you want to provide for your spouse should you die, then yes. If your spouse does work but could not possibly support his or her current lifestyle should you die (for example, could not possibly pay the house payments), then yes. Otherwise, probably not. Having life insurance would be a nice remembrance if you were to die, but it is not essential. What if you have kids and you provide income that they depend on? Then almost certainly, unless you are rich enough to be "self insured", you need life insurance. Yes yes yes. You need enough coverage to allow your spouse and children to live a comfortable life in the absence of your income.