Life insurance is a valuable financial tool — but it is not for everyone. If you do not have any dependents, you do not need life insurance any more than you need car insurance if you do not drive. You may also safely forego life insurance if your kids have grown up, or you have built enough wealth to comfortably support yourself and your dependents. 

Knowing when not to get life insurance is as important as knowing when you should. The last thing you want to do is waste your hard-earned money on a financial tool that provides limited value.

Can’t make up your mind about whether you need life insurance or not? Then this is the post for you! We will cover the top 5 reasons not to buy life insurance.

1. You are young

While it is true that age has nothing to do with life insurance, many young people do not need life insurance. The main factor in determining the need for life insurance is not age, but rather the financial impact of your death on others. 

As a young person, you may not need life insurance protection if you: 

• Do not have dependents; and
• Do not have any debt that will pass on to your estate or family members

On the other hand, if you have debts that someone else will inherit, you should consider buying life insurance — even if you are young and have no dependents. You may also want to consider buying a policy if you want to lock in a low rate for the next few decades or your entire life. 

Life insurance companies reserve their best rates for applicants who are young and healthy. Also, life insurance premiums generally stay the same throughout the life of a policy. Buying a plan in your early 20s allows you to lock in lower premiums and may reduce the total amount you spend on life insurance over your lifetime. 

2. You Don’t Have Dependents

Life insurance acts as a financial safety net for people who rely on you financially. If you die, your dependents can use the payout to keep afloat. Life insurance proceeds can help them cover living expenses, repay debts, and pay for end-of-life expenses. 

If your loved ones don't depend on your financial support, you may not need it. For example, if you are single, have a partner who doesn't rely on your income, if don't have financially independent children, life insurance may not be necessary.

On the other hand, if you do not want to burden your family with funeral costs, which may run into several thousands of dollars, you may consider buying a final expense insurance policy. These policies usually have affordable premiums since the death benefits are small — typically no more than $50,000. 

In another situation, people without dependents can benefit from obtaining life insurance if they have a co-signer on a loan. Once the borrower passes, the responsibility of paying off the loan falls on the shoulders of the co-signer. Having life insurance allows your co-signer to repay the loan balance without any financial stress. ‍

3. You are on a tight budget

When cash flow is limited, it may make sense to postpone buying coverage until you can afford it. If you are on a tight budget, you should probably prioritize life's needs such as housing, utilities, and clothes before paying for life insurance.

4. You are finding it tough to navigate the maze of choices

Another reason people avoid buying life insurance is that you are unable to navigate through the maze of choices alone. While term life insurance is relatively simple, whole life and universal life can be rather difficult to understand. Not only do these two include a savings element, but they also build wealth differently. Without having clear knowledge about how whole life and universal life work, it can be almost impossible to decide which one will be right for you.

If you are putting off buying life insurance because you cannot seem to get your head around various technical concepts and terms associated with it, consider speaking to an experienced independent broker. He or she will take the time to understand your life insurance needs, explain how different types of life insurance plans work, and help you pick a policy that is right for you. 

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5. Your life insurance needs have changed

Life insurance needs are not set in stone. As your personal situation changes, so may your life insurance needs. If you have reached a point where you have sufficient income and assets to comfortably support yourself and your dependents, you can cancel your current policy or choose to not renew coverage when its term expires. 

However, if your life insurance needs have changed or your existing policy is not right for your current position, consider switching to a new policy instead of going without life insurance. 

Let us say eight years back you bought a 15-year term life policy to cover your private student loan, which was co-signed by your parents. At that time, you had just graduated from college and had no dependents. However, today you are happily married with two children. You make monthly contributions to tax-advantaged retirement vehicles such as an RRSP, but you also want a life insurance policy to complement your retirement funds when the time comes.

Obviously, your current term life plan is no longer sufficient for your needs, since it does not include a savings component. Whole life or universal life plan, on the other hand, would be just right for you because they both combine life insurance protection with a savings component. When you retire, you can surrender the plan if you no longer need coverage and use the accumulated cash value to supplement your other retirement income. 

To get the type of coverage you now need, you can:

• Cancel your current term life plan and purchase a new whole life or universal life policy; or
• Convert your term policy to a permanent life plan 

The second option may be less expensive because you will not have to undergo a new medical examination. That is, if you change to permanent life insurance, your new premiums will be based only on your current age, not your current health. But keep in mind that not all insurers offer the conversion option, and those who do, offer it only for a specific period. For example, you may be only able to convert your term policy to whole life during the first 10-year period or until you reach a specified age, like 50.

Frequently Asked Questions

Is life insurance a scam?

Life insurance is not a scam, but nor is it for everyone. The quickest way to find out whether you need life insurance or not is to ask yourself this question: Would my death impact a loved one financially? If the answer is yes, you need life insurance. 

What are the two kinds of life insurance?

Life insurance policies are either term or permanent. Term life insurance policies cover you for a set period, such as 10, 20, or 30 years. If you outlive the policy term, the coverage expires, until you renew it. Permanent life policies, in contrast, do not have an expiry date. They last as long as you live (provided you keep up with the premium payments). Apart from lifelong coverage, many permanent plans also provide access to a savings element, known as cash value.