Fidelity Life: 5 Life Events That Trigger the Need for Life Insurance

According to the LIMRA’s 2022 Insurance Barometer Study, less than half of the respondents lacking life insurance said they feel financially secure. This makes sense — if one of a family’s earners passes away, the rest of the family can be severely impacted financially while they grieve.

Major life events can exacerbate this by changing the earner’s income and financial responsibilities. This article will dive into five events that could trigger the need to get life insurance, then explore a few life insurance policy types to consider:

Situations that trigger the need for life insurance

Here are a few situations that might make people consider getting a life insurance policy:

1. Starting a family

Parenting can be expensive. Therefore, life insurance is vital for new parents to consider. If the policyholder dies, the surviving partner can use the proceeds to care for the child without financial turmoil.

2. Changing jobs

Many employers offer group life insurance in employee benefits packages. However, this may not be enough, and the employee loses the policy if they change jobs. Therefore, getting an individual life insurance policy may be wise when switching to a new job since this can prevent the policyholder from losing all their coverage.

Additionally, it’s worth noting that a new job could mean a different salary. As a result, t he policyholder might need to get life insurance or increase their current coverage to adequately protect their loved ones.

3. Becoming self-employed

Self-employment can offer more flexibility but may come with more risk and fluctuations without a steady paycheck. Having a business can also complicate the self-employed person’s financial situation by adding new assets and debts.

At the same time, self-employed people must provide their own benefits packages. This makes life insurance an excellent choice for self-employed people to protect their families.

4. Supporting aging parents

Many adults help their parents personally and financially. If someone passes away unexpectedly, their parents may not have a caretaker or the financial resources to deal with issues that arise later in life. People can get life insurance and name their parents as beneficiaries so that when the policyholder passes away, their parents have the money they need to be well cared for.

5. Retiring

Life insurance can benefit retiring couples in two main situations. First, when one partner passes away, the death benefit can help the surviving partner pay off any of the deceased partner’s debts and supplement their own retirement assets. It’s also an excellent potential estate planning tool. Death benefits are tax-free, allowing seniors to pass more of their wealth to their heirs while possibly avoiding estate taxes.

Life insurance policies to consider

Life insurance can be beneficial for almost every major life change. Here are a few policy types to consider:

1. Term life insurance

Term life insurance gives the policyholder coverage for a fixed period that typically ranges from 10 to 30 years. Premiums are much cheaper than permanent life insurance. However, once the policy expires, the policyholder must renew or get a new policy to keep their coverage.

2. Whole life insurance

Whole life insurance is a permanent life insurance policy with higher premiums but lifelong coverage . Part of each premium goes into the policy’s cash value growth component, which grows tax-deferred at a fixed interest rate. Policyholders can borrow against or withdraw from the cash value when it grows large enough. They also can receive the full amount minus surrender charges if they surrender the policy.

3. Guaranteed issue life insurance

Guaranteed life insurance is a small permanent life insurance policy that ensures approval. The death benefit is smaller, but premiums are inexpensive , and the policy still builds cash value.

Keep in mind that a guaranteed issue life insurance policy might come with a 1 to 2-year lockout period. Beneficiaries may only receive a refund of the policyholder’s premiums instead of the full death benefit if the policyholder passes during the lockout period.

The bottom line

Nearly any major life event can trigger the need for life insurance. People should consider getting a policy when starting a family, changing jobs, becoming self-employed, caring for aging parents, or retiring.

Term life insurance can work well for shoppers on a budget who need significant coverage, whereas those who want to gain lifetime coverage and build wealth may be suited for a whole life insurance policy. Meanwhile, people who want to get a smaller policy and skip the medical exam can consider guaranteed issue life insurance. No matter the policy type, applicants should gather quotes from several insurers and compare them to get the most coverage for their budgets.