Do young people need life insurance?

I’ve heard this question asked more than once, and unfortunately it’s a terrible question. Someone’s age has very little to do with whether or not someone needs life insurance. An 18-year-old might need life insurance more than a 90-year-old, depending on their situations.

Here is a list of some better questions to ask about life insurance:

What is Life Insurance?

In one sentence, life insurance provides your family with money if you die.

There are many different kinds of life insurance, and there is a great Huffington Post article on Life Insurance 101 that gives you more detailed information.

Does My Family Need Extra Income if I Die?

This is the first, most important question to ask, because this tells you whether or not you actually need life insurance.

Imagine a world without you. Do you even have a family who relies on you for financial support?

If you do, then does your spouse have/make enough money to live without you? If you have kids, can your spouse afford to take care of them without working, or can your spouse afford to pay for a nanny or daycare while he or she works?

If your family doesn’t need any more money when you die, then you don’t need life insurance. On the other hand, if they will need some money then you have to ask yourself the next question.

Can I Afford Life Insurance?

You may decide that you could use some life insurance, but you also might realize that you are drowning in credit card debt, don’t have health insurance, and have $100,000 in student loan debt.

You have to prioritize things financially. If you have kids, life insurance might be the most important thing in your life. On the other hand, if you have a spouse with a steady job and no kids, you might want to focus your money on some other financial priorities.

If you need life insurance and can afford it, the next question is the hardest.

What Kind of Life Insurance is Best?

The best way to pick a life insurance policy is to talk to a financial advisor. Life insurance is complicated stuff. However, the two basic types of life insurance are Term and Cash Value.

Term life insurance is where you set a time period (maybe 20 years) and pay some amount of money each month over that time period. If you die within those 20 years, the insurance company will pay your family some amount.

A Cash Value policy acts kind of like a savings account, which you use to not only pay monthly premiums but also save up for future, more expensive premiums. These can also be used as perfectly legal tax-shelters if you are rich enough and know how to work the system.

Again, these are very basic descriptions and the best way to get the right life insurance is to talk to a professional about it. This is complicated stuff that bloggers like me aren’t qualified to address.

Readers: Do you have a life insurance policy? If so, what kind do you have and why did you pick that one?