When you’re single, who depends on you? You might not have a partner or children, but what about your parents and siblings? Are you supporting them with time or money? Or might you need to in the future?
Your financial obligations
Life insurance provides money for your financial obligations, which remain at death. You may have debt in the form of credit cards, student loans, car payments or a mortgage. Some of these obligations will need to be repaid even if you’re no longer alive.
Do you want to leave loose ends and place more emotional burdens on your family at a stressful time? Life insurance provides a tax-free lump sum to repay your obligations.
There are expenses at the time of death, including funeral costs and taxes. If you have liquid assets, they can be used but life insurance could be a much cheaper way to pay. You then have more to leave to the people you love and the causes you care about.
Your parents and siblings may be self-sufficient but other family members might need help. Maybe you have a charity you want to support. Donating life insurance is a cost-effective way to leave a large tax-free gift.
If you have group life insurance through work, your coverage is likely one to two times your annual earnings. That might be enough — as long as that job lasts. If you’re self-employed or want more security, you can buy personal life insurance. Term life insurance gets you started at a low cost.
Besides providing a tax-free death benefit, universal life and whole life insurance allow tax-sheltered growth. Some of your savings might belong there. You can think of life insurance as a different asset class.
How well protected are you from creditors? When you’re on your own, protecting your assets becomes more important because you’re the sole earner. Popular investment vehicles like TFSAs, RRSPs, and RESPs lack full creditor protection depending on your province and how you invest.
In contrast, life insurance can be fully creditor protected if your beneficiary is irrevocable (cannot be changed without their permission) or your beneficiary is in the preferred class (spouse, parent, child or grandchild of the life insured).
Are you sure you’ll be single forever? Once you have dependents, life insurance has an important role in providing them with financial security. Buying now while you’re younger provides protection sooner and could save you money. That’s because premiums increase as you get older.
You also face the risk that you might not qualify later in life or you might face a surcharge (called a rating) because of your health, work or hobbies.
Flickr: Ken Teegardin