Forgoing essential life insurance coverage could cause big problems.
- Life insurance provides protection to loved ones after the death of an insured.
- Personal finance guru Suze Orman says people should buy life insurance when they have someone dependent on their income.
For many people, buying life insurance is essential to protect their loved ones by ensuring their financial security even in the event of premature death. But when does it make sense for consumers to purchase a life insurance policy?
There are different potential answers to this question.
But personal finance expert Suze Orman has a simple rule that may be worth following. It’s a tool that can help consumers decide if coverage is worth it.
Suze Orman says life insurance should be purchased in this situation
Suze Orman’s advice on when to buy life insurance is very simple. She believes that if there is someone in your life who depends on your income, you need life insurance.
Orman goes on to give some examples of the types of people who might depend on a potential policyholder, including:
- young children
- Brothers and sisters
Essentially, the great test recommended by Orman is to ask if there is anyone a prospective policyholder is currently supporting who would be unable to support themselves if that prospective policyholder died today.
This could include parents if the potential policyholder pays for home care for them. These may be siblings or friends whose lifestyle is partially or entirely funded by contributions made by the person considering life insurance.
If there are people who would struggle if the potential insured died suddenly, then Orman thinks getting life insurance to protect them is a smart move.
What type of life insurance does Orman recommend?
Not only does Orman offer some simple advice on when to buy life insurance, but she also suggests that a term life insurance policy is the best choice.
She thinks it’s the right kind of cover because “life insurance is meant to provide financial protection for those who depend on you at a time in your life when you haven’t yet built up other assets” .
She goes on to explain that once a person has accumulated other assets, such as savings, that dependents could rely on, life insurance would no longer be necessary. After all, dependents in this situation would no longer depend on the potential insured’s income. They would no longer have a hard time maintaining their standard of living after the death of the insured, as they could simply use the funds saved to cover their expenses.
Term life insurance is much cheaper than whole life insurance. The trade-off is that the death benefit with a term life insurance policy does not pay out unless the insured dies during the term of coverage. That’s not a problem because, as Orman points out, most people don’t need insurance for the rest of their lives.
Does it make sense to follow Orman’s advice?
Orman is right that buying term life insurance is essential for anyone with financially dependent dependents. But it’s also important to make sure you get coverage if others rely on the services provided by a potential policyholder.
For example, a stay-at-home mom may not provide income, but provide valuable services that someone would otherwise need to be paid for.
In the end, it’s better to have protections for loved ones than to leave them in the lurch in the event of an untimely death. Term life insurance coverage is affordable and a good buy for many people. It is therefore absolutely worth researching life insurance companies and considering getting covered.
Life insurance protection for you and your family
While many varieties of insurance coverage are designed to help protect a person’s family and assets, life insurance is an essential type of protection. The right life insurance can help protect the people who depend on you most if you die. Choosing the right life insurance policy is essential to ensure the right protection for your loved ones. We’ve sorted through the different options to bring you our picks for the best life insurance policies available today.