Do you need life insurance?

If you’re not sure you need life insurance – or you’re asking, “Why do I need life insurance?” – the answers to these three simple questions can help give you an answer.

1. Do other people depend on your income?

You don’t have to be your family’s primary wage earner – maybe you only contribute a portion of your family’s income. Or maybe you contribute to other relatives’ expenses, such as your parents. If people would feel economic hardship without you, they depend on your income. Even if you're single and no one currently depends on your income, if you’re planning to get married and have children in the next few years, your answer to this question should be “Yes.”

2. Do you have debts that others would be responsible for if you were gone?

Do you have student loans that your parents will have to repay if you can’t? A car, mortgage, business, or personal loan with co-signers? These kinds of financial responsibilities are often overlooked, but if you answered “yes” to this question, life insurance can keep you from burdening a loved one with thousands of dollars in debt payments.

3. Do you have enough savings or liquid assets to cover all your obligations?

Many individuals don’t have a big enough nest egg to fully support family members in their absence and pay off debts. In fact, 35% of U.S. households would experience adverse financial impact within one month of their family’s primary wage earner dying prematurely2 – and most other households without life insurance policies would feel the impact soon after. So if you’re like many adults, if you have financial obligations, you should consider life insurance.

Who doesn’t need life insurance?

Broadly speaking, many people should consider life insurance. However, there may be situations where life insurance may not be needed. Everyone’s situation is unique. Consider speaking with a financial professional to determine what may be right for you. For just about everyone else, life insurance is either essential – or at the very least, a powerful financial tool for building and protecting wealth.

There are two basic types of life insurance: Term and permanent. A term life insurance policy provides coverage for a specific period of time, typically between 10 and 30 years. It is sometimes called “pure life insurance” because unlike whole life insurance, there’s no cash value component to the policy – once the term is over, there’s nothing left. However, it can be an affordable way to get a death benefit payout for a specific but limited period of time.

Permanent life insurance provides coverage designed to last your entire life. Unlike term, it’s not a “pure life insurance” product because it includes a cash value component, which helps coverage last while providing other advantages1. A portion of your premium dollars can grow tax-deferred over time2,3. Cash value provides a number of important benefits you can use while you’re still alive: you can borrow money against it, use it to help pay your premiums, or even surrender it for cash in retirement4. Because it lasts your whole life, it can also be used as a tax-advantaged estate-planning tool. In any case, from the first day you have a permanent policy, the entire death benefit is immediately payable.

How to get the coverage that’s right for you

If you can purchase life insurance through your employer, that may be a place to start. A lot of companies offer employee life insurance at very attractive group rates – however, coverage levels are often limited to 1x or 2x salary. The fact is, recent research shows that workers who only have group coverage through work are more likely to be underinsured compared to those who have individual coverage.

Coverage amounts available at work
Percentage of employers offering each coverage level
1x salary 35%
2x salary 28%
Flat amount for all 22%
Other multiple of salary 2%

How much life insurance do I need?

It really depends on the specifics of your individual situation. Are you a business owner looking to fund a buy-sell agreement with your partners? A wealthy retiree doing estate planning? A person in either situation has complex needs and should probably start by discussing specific goals or concerns with their personal financial professional. Let’s start with a somewhat simpler situation: you are a primary wage who wants to leave enough replacement income to provide for your family, at least until your children reach maturity. There are a few general rules of thumb to help determine your life insurance need:

  • Consider 10x your salary This is one of the simplest rules to follow, and it can help provide a useful cushion for your family – but it doesn’t take all your actual expenses and needs into account.
  • Consider 10x your salary, plus college expenses This can help ensure they can achieve more of the opportunities you want for them. 
  • Consider the DIME formula DIME stands for Debt, Income, Mortgage, and Education. Total your debts, mortgage and college expenses, plus your salary for the number of years your family needs protection (e.g., until the children are out of the house).
  • Consider the Human Life Value formula Some financial representatives calculate the amount you need using the Human Life Value philosophy, which is your lifetime income potential: what you’re earning now, and what you expect to earn in the future. In its simplest form, the philosophy suggests that you multiply your income by a variable based on factors such as age, occupation, projected working years, and current benefits.

As with every individual, the amount of recommended insurance you purchase depends on many factors. A simple way to get that number, however, is to multiply your salary times 30 if you are between the ages of 18 and 40. The calculation changes based on your age group, so please refer to the chart:

Age Insurance amount
18-40 30 times income
41-50 20 times income
51-60 15 times income
61-65 10 times income
66-70 1 times net worth
71-75 1/2 times net worth

I have more questions. What should I do?

Any of these methods are a place to start, but it also makes sense to talk with an experienced financial professional who can guide you through the process of calculating the actual amount you may need for your situation and explain which type of coverage is the best fit for you. If you have a knowledgeable financial professional you trust, talk to them about your life insurance needs. If not, Guardian can connect you with a financial representative who will learn about your situation, tell you about different ways to meet your needs within your budget, then help you decide. 

There’s one more thing you should know about getting a life insurance policy: the longer you wait to buy it, the more expensive it can get. So, if after reading this article you are considering life insurance – don’t put it off. 

Term life insurance calculator 

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Frequently asked questions about life insurance

Is it important to have life insurance?

If people depend on you for financial support or would have to pay your debts if you were gone, then it may be important to have life insurance to help ensure those obligations are met. People in other situations can also use life insurance as a powerful tool for helping to build and protect wealth. 

When should I buy life insurance?

Life insurance typically gets costlier with age, so you should consider buying life insurance as soon as you have a need for it. In fact, even if you don’t currently have family obligations but expect to have them in a few years, it may be worth your while to shop for coverage, get a medical exam, and lock in rates while you are young and healthy.

What is life insurance and why should I consider it?

Life insurance is a type of insurance that helps protect those who depend on you for support by paying them an income tax-free benefit in the event of your death.

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1. Protecting Those We Love: The Role of Life Insurance in Financial Wellness  Guardian Workplace Benefits Study, 7th Annual – Financial Wellness Series, Part 3, Sept 2019

2. 2018 Insurance Barometer Study, Life Happens and LIMRA

1 All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.

2 Dividends are not guaranteed. They are declared annually by Guardian’s Board of Directors. Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.

3 Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

4 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

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