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Something that has been nagging at me lately.

Let's take a person:

  • 30 years old, US, non smoker, no significant medical problems
  • No debt (of any kind, mortgage, student, or credit card)
  • No plans to initiate any kind of debt in the next few years
  • No known current dependents (spouse, children, parents)
  • No plans to initiate dependent in the next few years
  • Enough estate money to cover funeral expenses

Is there any benefit to carrying modest to significant life insurance coverage similar to what an individual with children, a spouse, or parents requiring caretaking might hold?

Would picking up insurance now, convey any sort of benefits to any policy said person might eventually get when it would normally make sense (dependents), when they are older (say 50+ etc.), or have large debt in the estate?

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FYI: Your debt is not going to be passed down with your estate. It will just be paid out of the estate (if there is enough money) before any disbursements are made. So there isn't a reason to worry that your kids (if you ever have any) will inherit your debts. –  JohnFx Jan 30 '12 at 21:12
    
Right! I do understand that. I just add debt because if an estate had $300,000 in debt, and $200,000 in liquid assets, then the estate would pass $0 to dependents. Whereas, if there was $300,000 in debt, $200,000 in liquid assets, and a $300,000 life insurance policy, the estate would pass down $200,000 minus taxman/expenses. –  Glorified Plumber Jan 31 '12 at 1:52
    
In the long term a youngish, debt and dependent-free person will tend to become an oldish, debt-ridden parent. –  DJClayworth May 20 at 15:48

5 Answers 5

up vote 7 down vote accepted

There is no benefit in life insurance as such (ie, death insurance.)

There is a great deal of value in other types though: total and permanent disability insurance, trauma insurance (a lump sum for a major medical event), and income protection insurance (cover against a temporary but disabling medical condition). If you don't have that, you should get it right now.

This is about the most important insurance you can carry. Being unable to work for the rest of your life has a far larger impact than having, say, your car stolen.

...

If, later on, you acquire dependents, and you feel you ought to have life insurance, then you will have a relationship with a life insurance company, and maybe they will let you upgrade from income/TPD to income/TPD/life without too much fuss or requalification. Some do; whether yours would I don't know. But at least you have a toe in the door with them, in a way that is infinitely more immediately useful than getting life insurance that you don't actually need.

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If there are no dependents, there is no need for life insurance.

You mention getting insurance when it is not needed, to protect you against some future risk. If you have a policy and a disease crops up that would normally make you un-insurable, you can keep your insurance for the rest of the term. The cost for this would be very high. You would have to have a term that would last decades to cover you until some future child is out of college.

If you never have somebody that depends on you for income, there never is a need for life insurance.

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For most situations the "no need" answers are 100% correct.

The corner case to think about depends on your health and your family history.

Not to be morose, but if folks in your family who died young from heart issues, clusters of cancer or other terminal illnesses, you may want to consider getting medically qualified for a modest amount of insurance when you are young. Then, when you have children, you usually have the option of incrementally upgrading your coverage over time.

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As Mhoran stated, no dependents, no need. Even with defendants, insurance is to cover those who would otherwise have a hardship. Once the kids are off to college and house paid for, the need drops dramatically.

There are some rather complex uses for insurance when estates are large but potentially illiquid. Clearly this doesn't apply to you.

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As others have said, if you don't have dependents, there's little need for life insurance. If you can't think of any obvious beneficiary for an insurance policy, than you probably don't need one.

"Dependents" here should be understood broadly. It wouldn't necessarily be limited to wife and children. If you're the only support for your handicapped cousin, for example, you might want to provide for him. But I take it from your question that you have no such special case.

Of course even if you have no dependents now, you might pick some up in the future. And if and when that does happen, your medical situation may have changed, making it difficult to get life insurance. But if you have no immediate plans so that any such even is likely to be far away, a serious alternative to consider would be to invest the money you would have paid in insurance premiums. Then if someday you do acquire dependents, you have a pot of money set aside to provide for them in case something happens to you. If it's not enough and you can get insurance at that time, then great, but if you can't get insurance, at least there's something. If you never do acquire dependents, you can consider that pot of money part of your retirement fund.

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