In a nutshell, there are a few things to consider when deciding if you need life insurance or not. It can be a great financial asset or a complete waste of money.
Things to consider:
– the amount of liquid assets you have (cash and things that can be converted to cash easily)
– your plans (have you prepaid your final arrangements or not)
– the lifestyle you want your heirs to have
– whether or not you have any dependents
– your stage in life
– your debts
– where you live (I just found out that life insurance is not the same thing in different parts of the world. Who knew? Now I am off to learn!)
Make sure you know what assets your heirs will have access to right away and what may be frozen. You may even have some debts that would be completely forgiven if you die before they are paid off. This could determine whether or not- or even how much- life insurance you need.
Life insurance premiums increase as you get older. If you start saving an amount equal to your life insurance premium when you are young, you will quickly have enough saved to cover at least your funeral. At this point you may be able to drop the life insurance and have the cash somewhere safe but readily available to those who need it.
If you have dependents and/or owe significant balances on your loans, you will need more insurance. Make sure you get enough so your family does not suffer or struggle if you are no longer here to provide for them.
Also, as you pay off your home, student loans, and other debts, and as your children become independent you may not need much, if any, life insurance. Adjust your payout accordingly.