Why Single People Need Life Insurance
If you've ever been to a financial website, you'll know there are many topics that are often debated in the financial industry. The most popular topics include: Will the stock market go up or down? When will interest rates rise? Which type of insurance is most important to have? One topic that has come up in a few conversations in the last week or so has been:
“Do single people need life insurance?”
Before we give our opinion, let’s review the purpose of insurance. Life insurance is typically purchased for three reasons:
- To replace your income for your spouse and family if you’re no longer here
- To pay off any debts
- To cover final expenses like taxes and funeral costs
We’ll now cover each point in reverse order and discuss the effect not having insurance would have on a single person.
To Cover Final Expenses
Regardless of whether your wishes are to have an extravagant party when you pass away, a formal funeral and burial service or cremation, there will be final expenses that someone will have to pay for. Also, in your year of death, all of your RRSPs will be converted to cash and count as income in that year, as you have never paid tax on these funds. Depending how prudent you’ve been at saving, this could produce a large tax bill that your estate is responsible for. Your life insurance will pay out tax-free and creditor proof to a beneficiary or charity.
To Pay Off Any Debts
Most couples buy insurance so that if one person dies, the other has enough money to pay off car loans, credit cards, the mortgage, and any other obligations. This relieves financial stress from the survivor, in which the last thing on their mind should be finances. Most debts will become the responsibility of your estate. However, if you are a single person and your parents co-signed for your “student loan” at a bank, or to help buy your first vehicle or home, they will still be on the hook for all of that debt.
To Replace Your Income
While a single person may not yet have a family to financially take care of, if there are plans in the future to do so, it may not hurt to consider buying life insurance early. It's never too expensive to buy insurance too early, but it can be super expensive (or impossible) to get if you try to buy it 1 minute too late. Purchasing life insurance early can ensure your insurability. Once a policy is issued, it cannot be taken away, which is important to consider if your future plans include a home or family. Keep in mind, a diagnosis of a single medical ailment could permanently increase you insurance premiums for life and make purchasing it impossible when you truly need it.
So, ultimately, like many topics in finance, the answer is still debatable, but the true answer really depends on your specific situation and goals.