WHEN TO BUY LIFE INSURANCE

PERSONAL FINANCE | ADVICE

Your need for life insurance changes with the stages of your life, starting with little to no need when you're young, progressing to greater and greater necessity as you take on more and more responsibility, and finally beginning to diminish as you grow older and your responsibilities wane.

Here is a guideline on determining your insurance needs.

When you're single with no children

It's unlikely your death would create financial hardship for anyone. Any honest financial assessment of your situation would have to conclude that you have little or no need for life insurance.

Still, you may be an important source of income or labor for your family. Do you help pay the rent or mortgage? Are you a vital member of your family's business? These are situations where buying a policy makes sense.

Dual-income couples with no children

Married couples with no children may need little or no life insurance, especially if both spouses contribute equally to the household income.

But it still could be a strain. Perhaps the surviving spouse couldn't afford the mortgage or rent payments on a single income, or maybe you have big credit-card debts. Under these circumstances, each of you should probably buy a modest amount of life insurance to protect the other.

One income and single or married with children

A one-income family with young children is the classic high-need situation. You need coverage that will replace that current income and take inflation into account to off set rising costs and diminished purchasing power.

Look beyond the paycheck and compile a full list of all the benefits that flow from that person's employment to get an accurate picture of how much insurance you'll need.

Coverage for the stay-at-home spouse

Coverage for a non-earning spouse is also important. The surviving employed spouse would have an immediate need to pay for child care. Also, a stay-at-home spouse usually makes or arranges for meals, does laundry, walks the dog and makes sure the kids get from one place to another. Who will do all of that? Lastly, was there an expectation that this spouse would go back to work? That will need to be considered, as well.

The golden years

The kids have grown and are making it on their own. You have a pension or 401(k), the house is paid off , and there are considerable assets that can be used to generate a good income after you die. In circumstances like this, you clearly don't need as much life insurance as you once did.

The one caveat here is estate planning. If your estate is large enough to be subject to the estate tax when you die, your heirs can use the death benefit to pay the IRS.