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Insurance

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

Know when you should start thinking about getting a policy.

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Oscar Wong | Moment | Getty Images

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

But even if you're convinced life insurance is useful, you may still feel confused about when to prioritize its purchase. Here are three signs you might want to start shopping for a policy.

You have people who depend on your income

Whether it's a spouse or young children, having people who depend on you financially is a sure sign to consider life insurance.

"It serves many purposes, but life insurance is [critical] if someone else is really dependent on you financially," says Eric Kirste, a certified financial planner at Savvy Wealth. A policy can provide funds, called a death benefit, if you pass away while covered.

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

  • Term life insurance provides coverage for a st amount of time specified in the policy, generally between 10 and 30 years. There's no coverage after that term expires, but this type of life insurance is generally more affordable than a permanent policy.
  • Permanent life insurance remains in effect for the length of your life and can accumulate cash value, an amount that earns interest and can be borrowed against for future expenses.

Term policies are meant to cover temporary situations, Kirste says, like having young children or a mortgage. Permanent life insurance is more expensive — it's meant to leave an inheritance to children or build cash value 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. One of our picks is State Farm for its standout record of customer satisfaction. Guardian also ranked highly for term life insurance out of the many we reviewed.

State Farm Life Insurance

  • Cost

    The best way to estimate your costs is to request a quote

  • App available

    Yes

  • Policy highlights

    State Farm offers a variety of term, whole, and universal life insurance products to choose from, alongside other types of insurance. It's rated highly for both financial stability and customer service.

Guardian Life Insurance

  • Cost

    The best way to estimate your costs is to request a quote

  • App available

    Yes

  • Policy highlights

    Guardian offers a variety of policies, including term, whole and universal. It also offers term policies that can be converted into whole or universal life policies, along with strong financial strength ratings.

You are a caregiver to someone at home

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 policy can help your family maintain the same standard of living even when you're gone. 

You have a mortgage

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 they can continue to make their mortgage payments in the event of your death. 

Experts recommend factoring in your mortgage when deciding how much life insurance you need. While a death benefit that is 10 times your annual income is a rule of thumb, your actual need could differ depending on your mortgage.

Kirste suggests considering both your mortgage debt and your future income potential when calculating how much life insurance to buy. "It is a larger number beyond the debt itself," he says.

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Bottom line

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. 

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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