Which Person Should Most Consider Purchasing Life Insurance?

Life insurance serves as a financial instrument designed to provide monetary security to beneficiaries upon the policyholder’s death. While many individuals may find value in possessing life insurance, specific circumstances elevate it from a beneficial option to a necessary consideration. This article will outline particular types of individuals and situations where acquiring life insurance becomes most important, helping readers assess their personal need for such coverage.

Individuals Supporting Financial Dependents

Life insurance is important for those whose income or care supports others. If an individual provides financial support or essential care, their passing could create a financial void for dependents, which life insurance can help fill.

Parents with minor children are a primary example, as life insurance can replace lost income for daily living expenses, future educational costs, and childcare. The average cost of raising a child to age 17 can range from approximately $318,900 to $331,900, excluding college expenses. College tuition alone can add substantial costs, with average annual figures ranging from about $11,600 for in-state public universities to over $43,500 for private institutions. Childcare expenses average around $18,800 per child annually, with infant care often costing more.

Caregivers for elderly parents or disabled family members also need life insurance. Their support might involve providing in-home care or covering significant living expenses. Replacing this care financially can be costly, with in-home care averaging a national median of $33 per hour in 2025, translating to about $4,300 to $6,300 per month for 30-44 hours of weekly care, and up to $17,300 per month for 24/7 care. Life insurance ensures funds are available for professional care or ongoing financial assistance if the caregiver is no longer able to provide it.

Spouses or partners where one is non-working or has a significantly lower income also benefit from life insurance. Policy proceeds can help the surviving partner maintain their standard of living, manage household expenses, and pursue shared financial objectives without the deceased’s contribution. Any individual whose income is the primary support for another should consider life insurance to safeguard their dependents’ financial stability.

Individuals with Shared Financial Commitments

Life insurance also plays a significant role for individuals who share substantial financial commitments, preventing their death from transferring an undue burden to others. This differs from income replacement, focusing instead on alleviating specific liabilities.

Homeowners with outstanding mortgages are a notable group, as life insurance can provide funds to pay off or substantially reduce the remaining mortgage balance. This helps prevent the surviving co-owner or family from facing foreclosure or struggling to meet payments, especially given that the average American mortgage debt was around $252,500 in 2024. Ensuring the home remains affordable for survivors provides peace of mind.

Individuals who have co-signed loans, such as student loans or business loans, represent another important category. Life insurance proceeds can cover these outstanding debts, protecting the co-signer (e.g., a parent, spouse, or business partner) from financial hardship. Without coverage, the entire debt could fall upon the co-signer, impacting their credit and financial future.

Business owners with partners often use life insurance to fund buy-sell agreements. This arrangement allows surviving partners to purchase the deceased partner’s share of the business using the payout. This ensures business continuity, provides fair compensation to the deceased’s estate, and avoids disputes or forced liquidation.

Individuals with substantial personal debt, such as credit card balances or personal loans, might consider life insurance. While personal debts are settled by the deceased’s estate, a policy can provide liquidity. This ensures the estate has sufficient funds to cover obligations without liquidating other assets or burdening heirs.

Individuals Planning for Estate and Legacy Needs

Beyond income replacement or debt coverage, life insurance serves as a tool for those with estate and legacy planning objectives. It provides financial fluidity for an estate and helps fulfill post-mortem financial wishes.

Individuals with federal or state estate tax obligations can use life insurance to provide tax-free liquidity to their estate. For 2025, the federal estate tax exemption is $13.99 million per individual. Estates exceeding this amount may be subject to federal estate tax, with rates reaching 40%. Life insurance can prevent the forced sale of illiquid assets, such as a family business or real estate, to cover these taxes.

For those desiring to leave a specific inheritance or make a charitable donation, life insurance offers a method. A policy can be structured to pay a precise amount to heirs or a chosen charity, even if other assets are illiquid or subject to market fluctuations. This ensures a specific legacy can be established or maintained irrespective of other financial circumstances at the time of death.

High-net-worth individuals employ life insurance as part of a complex financial strategy, including wealth transfer and estate equalization. Life insurance proceeds are not subject to income tax for beneficiaries, making them an efficient way to transfer wealth. It can also be used to equalize inheritances among heirs, particularly when some heirs receive non-liquid assets like a family business, while others receive cash from the policy.