When do you actually need life insurance?

Let me be frank: I do not have a life insurance policy. I am 37 years old, married, and pregnant with twins. My State Farm agent calls me on a near-monthly basis, encouraging me to secure a life insurance policy because “that is something I really need to do,” but I keep sending her to voicemail. 

In my 20s, having a life insurance policy felt like a ridiculous way to spend the barely livable wage I made, especially since I felt invincible and had no dependents (unless you count my perfect rescue mutt). In my early 30s, I entered a serious relationship, but we were establishing our careers — neither of which was all that lucrative — and handled our finances completely separately. My partner’s financial security after my make-believe premature death was not top of mind. 

Maybe it’s the pregnancy, or perhaps the impending collapse of society, but I’m finally starting to consider setting up a policy. Still, life insurance remains a total mystery to me. To understand if and when it actually makes sense to have life insurance, I called up a financial therapist and a wealth manager and asked them: When are these things really, truly necessary? Here’s what they said.

What does a life insurance policy even do? 

Let’s start with the basics. A life insurance policy is a contract designed to pay out money to people you love — known as beneficiaries — in the event that you die. That money, which typically gets paid out within 14 to 60 days, can help your surviving crew pay bills, student loans, childcare, mortgage, property taxes, rent, and so on. “The money that can come through the payout of a life insurance policy can help them weather what is in store for them for life,” Dina Megretskaia, a principal and wealth manager at Modera Wealth Management, tells Vox. 

There are two main types of life insurance: term life insurance, which offers protection for a set period of time (like the next 20 years), and permanent life insurance, which is essentially an account you dump savings into throughout your life. Term policies are cheaper and give you flexibility, especially if you are young or expect your circumstances to change in the future. Permanent plans let you build “cash value,” meaning that, based on interest rates and market returns, your savings will grow over time. The key benefit of permanent policies is that, unlike term policies, they last for life, and the premiums are fixed. Those who want a way to build inheritance for their heirs and stable (yet costlier) premiums may prefer a permanent option. 

In most cases, a term policy — that can be renewed, though typically with a higher premium — is most affordable and the way to go, Megretskaia says. Working with a financial advisor can help you determine what kind of plan is best for you, based on where you’re at in life.

The price of your premium (aka the monthly or annual fee you pay) for term life insurance, depends on multiple factors, including your age, overall health, job, coverage, and amount of time you want to be covered. Term policies are usually very cost-efficient, amounting to a couple hundred dollars a year for tens of thousands of dollars of coverage, and even hundreds of thousands, especially for younger, healthy applicants. For example, according to Liberty Mutual, a healthy 30-year-old woman can get a $20,000 term policy for less than $8 a month. A 55-year-old can acquire that same policy for $25.50 a month. 

When do you actually need life insurance? 

Simply put, the smartest time to get life insurance is when you have dependents of any kind, says Nathan Astle, a financial therapist with Financial Therapy Clinical Institute. What is a dependent? Really anyone who relies on you financially. This doesn’t solely mean people who rely on your income; they may depend on your “unpaid” services, too, such as caregiving. “It’s more flexible than you might think,” says Megretskaia. Most obviously, dependents are your spouse or children, but may also include siblings, chosen family, friends, even parents you planned on caring for one day. “These are people who would be struggling if you did die,” says Astle. You get to determine who your dependents are.

If you don’t have dependents, life insurance is not as important. As Astle told me, “realistically, there are only so many things you can spend your money on.” 

That said, if you have a bit of wiggle room in your budget, locking down a policy early — even if you’re young, healthy, and feel you don’t need it — can be a worthwhile, financially-savvy move, according to Megretskaia. Many policies have convertability, which gives you the option to switch a term policy to a permanent policy in the event you get sick — with, for example, cancer, heart disease, or type 2 diabetes — during the course of the policy’s term, she says. Why does this matter? Some providers will not issue new coverage to people with chronic illnesses or renew your policy when your term concludes. Or they may require you to take a medical exam and hit you with a sky-high fee. Convertibility, which you’d enact while your term policy is still active, ensures you’ll continue to have coverage for life, and, better yet, without needing to do a medical exam, says Megretskaia.

A life insurance policy provides peace of mind that, even without savings or a juicy trust fund, you will be able to provide for your family, friends, chosen family, whoever for a period of time if and when you are no longer alive. That way, they can let themselves grieve your death without becoming completely overwhelmed about how they’re going to pay that next bill without you around, Astle says. “Most of us don’t have safety nets, and our families don’t have safety nets, so it’s important to have what you can,” he says.

And if you change your mind, you can always cancel your policy, change it, or set new beneficiaries. You aren’t locked in for life. 

Here’s how to nail down a good policy

First, sit down with your loved ones — those dependents — and have an honest, open conversation about what their needs may look like when you’re gone. Knowing how much money to lock in can be a highly emotional decision, says Astle, so you want to really consider “what it would mean for a partner or kids or whoever to receive this amount of money.” 

Start by talking about your values and identifying your goals and priorities, says Astle. Do you want to be able to pay off your house? Or cover your child’s college tuition? Maybe pay for your father’s live-in caregiver for 10 years? That will help you evaluate the premiums and figure out what’s affordable. “It’s more of an art than a science,” Megretskaia says.

To find a trustworthy provider, ask your friends, colleagues, or family members for a referral, or check out local ratings on Yelp. You might also want to see if the agent who provides your home, car, or renters insurance offers a life policy that works for you, or look into whether you can opt in to coverage through your employer via a small deduction from your paycheck. If you want to peruse further, head on over to TERM4SALE — this is a website where you can get personalized life insurance quotes, and it’s how Megretskaia personally evaluates the price tag of term policies for her own clients. You could also check out Policygenius or Intelliquote. Before you sign your life away (sorry!), there are a few things to consider. 

A few more things to keep in mind: First, Megretskaia always advises her clients to purchase policies with convertibility clauses, just to ensure they’re protected if the unexpected occurs. You also don’t want to skim the fine print. “Read it fully,” Astle says. There are sneaky exceptions and caveats, which vary from state to state, and it’s crucial to know what you’re buying. For example, an insurer can deny paying out your coverage if they detect a “misstatement” — e.g., you claimed you’re a nonsmoker when you do, in fact, smoke. They may also refuse if you die by suicide soon after setting up a policy. Dangerous hobbies, like skydiving, can raise your premiums or result in denied coverage, too. 

Astle says it can be helpful to find an agent who is willing to educate you. For ease, you can go with one you’re connected to through your employer or car and renter’s insurer — or, you can work with an independent licensed broker who will share quotes from multiple insurers. Don’t be afraid to ask them questions about what various clauses or language mean regarding your coverage. And, tip from me, pick up the phone when they call. 

Finally, be kind to yourself when setting up a policy. Life insurance is inherently confusing and really heavy. “Go into these decisions with some compassion for yourself and some patience,” Astle says.