Who needs life insurance, and who probably does not

The question underneath the question

Most articles answer this with a list of people who should buy life insurance, and the list is always long enough to include everybody. That is not useful.

The real test is narrower. Would your death create a financial problem for someone still living? If yes, life insurance is one of the cheaper ways to solve it. If no, you do not have a gap to fill, and buying coverage is a preference rather than a need.

Working out which side of that line you sit on takes about ten minutes.

Situations where the answer is usually yes

Someone depends on your income. A partner, children, a parent you support. If the money stops, their situation changes materially. This is the most common reason people buy, and the amount required is usually larger than people first guess.

You share a debt with someone. A mortgage held jointly, a co-signed line of credit, a car loan with a spouse on it. Death does not cancel these. The lender still expects payment, and the surviving borrower is the one being asked. This catches people out because they think of the debt as shared rather than as fully owed by each of them.

You have children who are not yet independent. The gap runs from now until the youngest is standing on their own feet, which for most families is somewhere between fifteen and twenty-five years. That timeline is one of the main inputs into how long a term should run.

You run a business with a partner or you are the person the business depends on. If your death would force a sale, trigger a buyout the other owner cannot fund, or simply end the revenue, that is an insurable problem. See key person and buy-sell coverage.

Your estate would owe money on death. This one arrives later in life. A cottage or a rental property can trigger a capital gains bill in the year of death, and the estate has to find that cash from somewhere. Permanent insurance is often the tool used, which is covered in estate planning.

Situations where the answer is often no

A single person in their twenties with no children, no co-signed debt, and student loans that die with them does not have anyone to protect. Federal and most provincial student loans in Canada are not passed to family. If a parent co-signed private debt, that is different, but the ordinary case is that there is nothing to insure against yet.

Someone whose children are grown and financially independent, whose mortgage is paid, and whose savings would comfortably cover a funeral and settle the estate is in a similar position. Coverage bought decades ago may have done its job and may not need replacing. Whether it still earns its premium is a real question, not a rhetorical one, and it is worth asking before renewing an expiring term policy out of habit.

Two cases people misjudge

Stay-at-home parents. The reasoning goes that there is no income to replace, so there is nothing to insure. That misses what would actually happen. Childcare, after-school care, and the driving and household work that was being done for free would all need paying for, or the surviving parent would need to reduce their hours. That cost is real and it runs for years. It is discussed in more detail under coverage for new parents.

People who have coverage through work. Group coverage through an employer is genuinely useful, and it is also usually smaller than people assume, often one or two times salary. It normally ends when the job does, and it is not something you can take with you in the same form. Treating it as your whole plan works right up until the moment you change jobs or retire. The trade-offs are set out in work coverage versus your own policy.

The answer moves

The most common mistake here is treating this as a one-time decision. People check once at twenty-five, conclude they do not need coverage, and never look again through a mortgage, two children and a business.

Worth revisiting whenever one of these happens: buying property, having a child, marrying or separating, starting a business, taking on debt with somebody else, or a change in a partner’s income. Each of those changes who would be affected if you died, which is the only input that really matters.

If the answer is yes

The next question is how much, and that is a calculation rather than a guess. How much coverage to consider works through it.