Under What Conditions Should You Have Life Insurance?

Under What Conditions Should You Have Life Insurance?
rawpixel / Pixabay

Life insurance can be an intimidating concept if you’ve never confronted it before. It can provide significant benefits to your spouse and/or family upon your death, substituting your income and covering the costs of funeral expenses, but not everyone will benefit equally from having a policy. So how, exactly, does life insurance work, and under what conditions is it advisable to have it?

How Life Insurance Works

Let’s start with the basics. Life insurance works as a contract between you and a life insurance company. After shopping for a specific life insurance policy, you’ll pay to keep the policy on an ongoing basis, with a regular monthly rate, usually based on your individual risk of death and the number and type of benefits to be paid out. If you die, your beneficiaries (usually your spouse, your children, or some combination of the two) will receive benefits as specified by your policy. This can include payments for your funeral, mortgage payments, or a lump sum to serve as compensation for the lost income.


Crypto Hedge Fund Three Arrows Blows Up, Others Could Follow

CryptoA few years ago, crypto hedge funds were all the rage. As cryptocurrencies rose in value, hundreds of hedge funds specializing in digital assets launched to try and capitalize on investor demand. Some of these funds recorded double-digit gains in 2020 and 2021 as cryptocurrencies surged in value. However, this year, cryptocurrencies have been under Read More

Q1 hedge fund letters, conference, scoops etc

Generally, the cost of life insurance increases with age. Per-year premiums for a life insurance policy with the same payout will increase steadily with each year you age. This is because your risk of death increases with age, and is something to keep in mind when pricing policies.

Factors to Consider

Which conditions should lead you to get life insurance? Is life insurance recommended for everybody?

The short answer is no, life insurance isn’t a good investment for everyone, but there are some factors that can help you make a better decision on whether to purchase a policy:

  • Dependents are going to be your biggest priority and most important consideration when debating whether to purchase life insurance. If you don’t have any dependents, i.e., no spouse or children, you may not need life insurance to protect them. If you do have dependents, you’ll need to consider how much they truly depend on you. If your spouse doesn’t work, for example, and your salary is covering the entirety of your family’s expenses, you’ll need life insurance more than someone with two full-time working parents.
  • You’ll also need to think about how much you have in savings. If you have enough money to cover all your debts, including your funeral expenses, and if you have extra money to leave behind to your family, you may not need to worry about life insurance. In that scenario, you’ll have already covered the expenses that life insurance would be designed to cover.
  • Debts are another important consideration. If you have a house with an unpaid mortgage, a life insurance policy could finishing paying that debt upon your death. The same is true of business-related debts, student loans, or other debts that your spouse might otherwise take on.
  • Remember, the older you get, the greater your risk of death will be, and the more expensive life insurance will become. For the most part, it’s better to purchase a life insurance policy when you’re young; not only will you be paying less per month to keep your policy, but your death also has a higher likelihood of blindsiding your family, since they won’t be anticipating it and you may not have as much accumulated wealth.
  • Life insurance options. Not all life insurance policies are equal. Some are focused on meeting the baseline expenses related to your death (i.e., funeral costs), while others provide substantial benefits. You’ll also have different costs, different payment options, and different services from your provider. If your employer offers discounted or free life insurance, that’s even more of an incentive to take out a policy.
  • Professional position. In some cases, you may want a life insurance policy to protect your business. For example, if you’re the founder and CEO of a business, it may be in the business’s best interest to have you protected with a life insurance policy, so it can afford to deal with the fallout of your death.
  • Risk factors. You’ll generally pay a higher fee for life insurance if you face a higher risk of death. Certain health conditions, bad habits, and lifestyle factors may significantly increase your risk of death, which can push your policy rates higher.

It’s also possible to buy a life insurance policy for someone else, like if you want to insure a child, or if you want to insure a business partner, but that’s a matter for a separate article to cover. For now, it’s best for you to realize that life insurance can be a good investment, but it isn’t strictly a good investment for everyone. Think carefully about your financial position, your risks, and your specific life circumstances before you decide to get a policy.

Updated on

Ankur Shah is the founder of the Value Investing India Report, a leading independent, value oriented journal of the Indian financial markets. Ankur has more than eight years of equity research experience covering emerging markets, with a focus on India and South East Asia. He has worked as both a buy-side investment analyst for a global long/short equity hedge fund and a sell-side analyst for an emerging markets investment bank. Ankur is a graduate of Harvard Business School. You can learn more about his latest views on global markets at the Value Investing India Report. -- He can be emailed at AnkurShah47@gmail.com
Previous article New Animoji May Be Coming In iOS 13 With Other New Features
Next article Mars InSight Lander Successfully Detects Its First Marsquake

No posts to display