When Should I consider life Insurance?

Someone reached out to me today and sent me an email asking:
When should I consider life insurance?

This is a very good question and every person's situation is different. To answer that question I will also answer these two questions : What is insurance? What is life insurance specifically?

I remember when I was studying to get my license and I ran across the definition for insurance. I always knew what insurance did on some basic level but didn't have a legal definition for it. Chris Rock put it this way, insurance is giving someone money in case (expletive) happens. The legal definition is that you are transferring risk from one party to another. Simple right. Life insurance is transferring the risk of someone passing away and the financial outcome as a result. So when you purchase or consider life insurance you are transferring the risk that you will pass away in exchange for money? This is the most basic reason to buy life insurance is to protect your loved ones in case you pass away in an untimely manner. Life insurance provides a tax free benefit to a party who would be affected by your loss, i.e your beneficiary.

Life insurance is normally purchased when:

1) A couple gets married.

2) You are taking on a loan college, vehicle, home purchase etc.

3) You have someone dependent on you for financial support who would be hard pressed with out you. To replace income for e.g Birth of Child, Adopting a child, caring for parent, etc.

4) If you are planning on retiring before 59.5 years old (will go into detail later, this involves advanced topics in insurance and its tax situation)

5) You or your loved ones cannot cover the costs for funeral out of pocket (10,000)

6) A child is born and the insurance will be used as a partial vehicle to fund college expenses (also an advanced topic which will be touched upon later)

7) To divide up funds equitably once you pass away and increase the amount your next of kin would receive (also another advanced topic which will be discussed at another time)

8) To be used as a vehicle for charitable giving could be an organization could be your University

9) You are looking to use insurance as an investment vehicle (also another advanced topic to be discussed on this blog)