Here is the next installment in our the Reader’s Questions Series which highlight questions emailed to me by you, the readers of Money Q&A. Be sure to find out at the end of this article how you can receive a free copy of Dave Ramsey’s book, The Total Money Makeover if your money question is chosen to be featured a future week’s blog post.
If you’re not familiar with Dave Ramsey’s book, you should run right out and get it. It is one of the best personal finance books that everyone should read. Now….on to our reader’s question.This week’s Reader Question is from Michelle in Fargo, ND. She asks…
Do single people need life insurance?
This is a great question that I hear quite regularly actually, and it all stems from people not understand the true purpose of life insurance.
Do single people need life insurance if they do not have an heir or someone that they look after or who relies on their income?
The True Purpose Of Life Insurance
Life insurance is meant to protect your most valuable asset, your income stream. More importantly, it is designed to protect your future income stream should you die a premature death. Life insurance protects your income and replaces it for your loved ones who depend on it in order to survive and live day to day.
So, if you have no one who depends on your income to live such as a spouse or children, then you most likely do not need life insurance. This is a prime example of why children do not need their own life insurance policies.
Ten Times Your Income In Life Insurance
Have you ever wondered where people got the rule of thumb that you need ten times your annual income in life insurance? It is based on ten times your income allowing you to replace your income for your heirs after you die without having to touch the principle amount and live off of the interest that is distributed.
For example, if you earn $50,000 per year before taxes, the standard finance rule of thumb would suggest that you purchase a $500,000 life insurance policy (term life preferably over whole life). If you invested that half a million dollars in investments earning 8% annually, you would have an income stream of $40,000 which would be approximately the same amount of money that you receive in your take home pay after taxes.
Wrapping It All Up
You should typically wait until you start a family or have someone who depends on your income before you spend your money on life insurance. Buying life insurance before that point in your life is typically a waste of money.
Past Readers’ Questions:
- Is A $1,000 Emergency Fund Enough To Start?
- How To Prioritize Which Bills To Pay First
- Should You Put Your Emergency Fund In Mutual Funds?
- How Do You Start Saving If You Live Paycheck To Paycheck?
- How To Find A Payment Plan Without Cutting Necessities
- Is My Money Save In A Bank?
- What To Invest In After The Company Match
Do you have a money question that you would like to ask? Email me your money, investing, retirement, savings, or other question to Questions[at]MoneyQandA.com. If I pick your question for the next article in the series, I’ll send you a free copy of Dave Ramsey’s book, The Total Money Makeover, or you can pick from any of these other free books instead.
I appreciate receiving all of the questions! I would really like to turn this into a weekly series of blog posts answering your questions every Monday. So, please keep them coming!
What do you think? Do single people need life insurance? Are you single? Do you have life insurance?