3 signs you might need life insurance, according to an expert

Life insurance can help your family and dependents cover important expenses, such as childcare and mortgage payments, in your absence.

But even if you’re convinced of this financial tool’s usefulness, you may still feel confused about when to prioritize its purchase. Here are three signs you might want to consider taking a weekend or so to start shopping for a policy.

Whether it’s your spouse or young children, having people in your life who depend on your income is a sure sign that you need to consider life insurance.

“It serves many purposes, but it’s traditionally if someone else is really dependent on you financially,” says Eric Kirste, a certified financial planner at Savvy Wealth. Life insurance can assist your family by providing money, called a death benefit, if you pass away while covered by a policy.

There are two distinct types of life insurance to consider in this scenario:

• Term life insurance covers you for an amount of time specified in the policy, generally between 10 and 30 years. After that term expires, there’s no coverage, but this type of life insurance is generally more affordable than a permanent policy.
• Permanent life insurance stays in force for your entire life and can accumulate cash value, an amount that earns interest and can be borrowed against for future expenses.

One of the biggest differences between term and permanent life insurance is the cost. “Term insurance serves a temporary need, and it’s cost-effective,” Kirste says. Term policies are meant to cover temporary situations, like having young children or a mortgage, for example. Permanent life insurance is more expensive and meant for those who want to leave an inheritance to children or build cash value in the policy to use later in life.

Though finding the right life insurance plan can be tricky, we’ve done some of the hard work for you. CNBC Select rounded up the best life insurance companies and picked out several that stand out from the competition. Some of our top picks include State Farm for its standout record of customer satisfaction. Guardian also ranked highly for term life insurance out of the many we reviewed.

A paycheck isn’t the only reason someone may depend on you. If you provide full-time care to a child (or anyone else), you should also look into life insurance even if you don’t earn an income.

“If something were to happen to that person providing childcare, there are other things that they’re going to be doing at home for the other partner,” Kirste says. “And there’s a dollar value to that.”

Having life insurance as a stay-at-home parent can help cover your family’s expenses if you aren’t around anymore. According to the caregiving platform Care.com, the average cost of hiring a nanny is about $694 per week and can be even greater in areas with a higher cost of living. The right life insurance policy could help your partner and family maintain their standard of living if it’s ever needed. 

One common reason to get life insurance is having a mortgage. If you bought your home with a partner, you’ll want to make sure that they’d be able to afford to continue to make their mortgage payments. 

Experts recommend factoring your mortgage in when deciding how much life insurance you need to have. While a death benefit that’s 10 times your annual income is a rule of thumb, your actual need could differ depending on your mortgage. Kirste suggests thinking about both your mortgage debt and your future income potential when deciding how much life insurance to buy. “It is a larger number beyond the debt itself,” he says.

If you have a mortgage or are buying a home, life insurance could help your partner or spouse continue to live there even if something happens to you. 

Life insurance is a way to make sure that your family or partner is protected financially if you die. It’s especially helpful if you have large debts like a mortgage, or have people who depend on your income or work at home to live life well. 

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