How to determine if you need life insurance

Problem: I’m pretty sure I don’t like life insurance, but I’ve been told that I need it. 

It seems like I resist things that I don’t fully understand. When I was a kid, my dad always hated life insurance. Now, as we work through our estate planning, insurance seems to come up. My property insurance guy and others have tried to sell me life insurance over the years. I think some of my neighbors have life insurance in place. I have heard some of the premiums, and I know I don’t like the sound of that. Do I need life insurance?

- Submitted by email from G.A.

Solution: This is a classic question, and my answer can go any direction! To start, your question begs me to ask more questions of you to understand your situation.

However, in the absence of that conversation, I will give you my clear answer: Yes, no, and maybe.

Yes, you need life insurance if:

• Your estate plan requires an influx of cash at your death for buyouts, equalization, or taxes.
• One of your goals is to have debt paid off at your death.
• There is a chance you could die someday.

You may not need life insurance if:

• You have only one child and no debt or tax issues.
• You don’t have any farming heirs and everything is going to your children equally.
• You don’t have any debt or paying it off is not a concern.
• The insurance is not tied to a goal or coordinated with the plan.

You may not be able to buy or shouldn’t buy life insurance if:

• You are uninsurable for health reasons.
• You don’t have the cash flow to pay the premium.
• You don’t understand how the insurance works and don’t trust the person pushing the idea on you.

You might consider buying life insurance if:

• You have money laying around and nowhere else to spend it, so you are looking at an investment with leverage and tax advantages.
• You observe that life insurance does not address inflation, but it does offer leverage.
• You don’t have any farming heirs, but you want a young farmer in the neighborhood to buy out your children.
• With proper guidance and planning, the premium payments for the insurance will cash flow.
• Your health is good enough to qualify for insurance.

Why did your dad hate life insurance? Did he have a bad experience, which could be very possible? Was his opinion nothing personal but just a result of coffee shop talk?

Not all insurance is the same, and some types of insurance are simply not good.

For some people, car sales, insurance sales, door-to-door cleaning product sales, and extended vehicle warranty calls all fall into the same category. They all seem slippery and pushy.

I get that, but I also know there are times when I really need a vehicle. It would be foolish to say that because I don’t like car salespeople, I am just going to walk the rest of my life, or maybe just because I don’t like paying for fuel, I am not going to buy a semi.

G.A., your question is great but really vague, so I gave you a buffet of considerations.

Now I will summarize and give you my best and final answer.

No one should need to tell you that you “have to get life insurance.”

A solid estate plan that is explained properly will identify whether life insurance is needed for your situation, not your neighbor’s.

It is possible your resistance and your dad’s insurance opinion are right. On the other hand, maybe you both have been missing a good option.