Protecting the Dream of Homeownership During National Homeownership MonthKey Takeaways
- Anyone whose death would create a financial gap for someone else — a partner, child, business, or co-signer — is a candidate for life insurance, not just traditional breadwinners.
- Term life insurance is typically the most affordable way to cover a temporary need, like income replacement or a debt that will eventually be paid off.
- Permanent life insurance policies build cash value that business owners can borrow against, making them useful for funding buy-sell agreements or covering estate taxes.
- Locking in a life insurance rate while young and healthy typically secures lower premiums, even for someone who doesn’t have dependents yet.
- Parents of a special-needs child can use permanent life insurance to help guarantee ongoing financial support regardless of when they pass away.
- High-net-worth individuals often use permanent life insurance specifically to help heirs cover estate or inheritance tax obligations.
Bring up the subject of life insurance at a party, and you probably won’t be the life of the party for long. It’s one of those subjects everyone has thought about at one time or another, but for most people it’s just not a priority. Part of the problem lies in the misperceptions many people have about it.
According to the 2015 Insurance Barometer Study by nonprofit Life Happens and the insurance industry research group LIMRA, 30 percent of Americans believe they need more life insurance, and 43 percent would feel a financial impact within six months if their primary household wage earner died. But 54 percent say it’s unlikely they’ll be buying life insurance within the next year. It’s too complicated. It’s too expensive. There are other financial priorities. The reasons are many.
These simple misunderstandings about life insurance could be robbing millions of long-term financial security.
Two of the biggest misunderstandings about life insurance are who really needs it and what it can be used for. Yes, there are certain groups that need it more than others. But life insurance has evolved just like other financial tools, and you might be surprised how many different kinds of people and life situations are a good fit for life insurance. For example:
1. Breadwinners
If someone depends on you financially, you need life insurance. Term life insurance coverage can provide income replacement so if something happens to you, those who depend on you can continue paying everyday expenses. In our experience, this is the group most likely to already have some coverage through work — but employer-provided life insurance rarely follows you if you change jobs, which is worth checking before assuming you’re covered.
2. Business Owners
Life insurance can be used to pay off your business debts if you die, help your heirs pay off estate taxes, or fund a buy-sell agreement. With a permanent life insurance policy, you can borrow against the cash value to cover business expenses. You can even fund a retirement plan for your employees with life insurance. A permanent life insurance policy is often the vehicle used for these buy-sell and retirement-funding strategies, since it’s the only type that builds the cash value a business can borrow against.
3. Stay-at-Home Parents
In these tough economic times, it’s become more common for both parents to work. But there are still plenty of stay-at-home parents out there, and when you consider the value of the services the stay-at-home parent provides, it’s easy to see why he or she can benefit from life insurance.
4. Single Mothers
More than 40 percent of children born in the U.S. are born to unmarried women, and most of those women are in their 20s and 30s. Life insurance can provide invaluable financial protection for those new babies.
5. Singles With No Children
Why would a single person with no kids need life insurance? If you’re young, healthy, and single, but plan to get married and have a family one day, there’s no time like the present to start preparing for a secure financial future. You’ll also probably qualify for a lower rate, so you might as well lock in your premium while you can. This is also the group we’re seeing lock in coverage earlier than in past years — see our post on why millennials and Gen Z are securing life insurance protection now.
6. Parents of a Special-Needs Child
Permanent life insurance can ensure your special needs child has financial support no matter when you pass away.
7. Someone With Co-Signed Debt
Term life insurance can cover the cost of your debt so you don’t pass it on, and the policy can be scheduled to end when the debt payments end.
8. High-Net-Worth Individuals
If you have a high net worth, permanent life insurance can help your heirs cover estate or inheritance taxes. We frequently see this coverage layered alongside broader estate and private client planning, rather than purchased as a standalone policy.
Term vs. Permanent Life Insurance: Which Type Do You Need?
Term life insurance offers affordable, temporary coverage — a good fit for income replacement or paying off a debt that has an end date. Permanent life insurance (whole or universal) lasts a lifetime and builds cash value, which is why it shows up above for business owners, parents of a special-needs child, and high-net-worth individuals with estate planning needs. The right type comes down to whether your need is temporary or ongoing.
Life insurance can offer peace of mind for people of nearly all ages and life situations. Don’t let misperceptions cheat you and your family out of financial security.
You don’t have to fit a stereotype to need life insurance. Whether you’re supporting a family, running a business, or simply want to lock in a lower rate while you’re young and healthy, the right policy is more accessible — and often more affordable — than most people expect.
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