Fool's School

Life insurance is very important, but it's not for everyone. Single people with no children often don't need it, for example - but sometimes they do.

Many think of life insurance as a lottery ticket, one that will pay a big bounty to loved ones when we die. A better way to think of it is as protection for an income stream.

Think about the income you earn. Is anyone relying on it? For married people, there's a good chance that their spouses, and perhaps their children, would be worse off financially if they died and their income streams ended. Those folks would be well-served by life insurance.

Single people shouldn't assume that they don't need life insurance, though, because very often, someone is still depending on their income streams. For example, you may be helping your parents financially, or your nieces and nephews. Or maybe you're paying off a private student loan (or other loans), and someone, such as a parent, has co-signed that debt; if so, they'll be on the hook to pay it off should you die.

If you've bought a home with someone, such as a sibling, and you're both making payments on the mortgage, life insurance can ensure that your housemate isn't left with unaffordable payments.

If you're a business owner, it can help keep the business afloat until necessary decisions and plans are made (and lenders to your business might require it).

Finally, a modest life insurance policy can fund any end-of-life plans, such as a funeral and burial.

There are two main kinds of life insurance: whole and term. Whole life insurance is part insurance and part investment, but you can generally do better investing outside your insurance policy. Term insurance tends to be a better choice, covering you for a specified period. For example, you might buy a 20-year policy that will last until your children are grown.

Life insurance isn't fun to think about, but many people need it. ¦