If you are wondering is life insurance required by law, the answer is: not necessarily. If you mean that is it a mandatory to have a life insurance, then it is not. However, the implementation of the life insurance (the mechanism, the regulation, the process, etc) is state based. It means that the regulations concerning life insurance implementation (and what insurance companies) must follow are state laws, not federal laws. It means that it isn’t the federal responsibilities that take care of the regulations. This is why each state has their own unique regulation sets, their own (state insurance) commission, and also penalties.
It also means that a life (insurance) company operating in each state may offer (and issue) policies which are different in every one of those states – it’s because of the different governing laws. It can be confusing if you have to choose a premium. Be advised that filing a (life) insurance claim across states can be overwhelming. Let’s say that your grandma living in Chicago is appointing you as the beneficiary, but she purchased the insurance 50 years ago when she was still in Philadelphia, and yet you are currently living in Colorado. Quite a hassle, eh?
General Facts about the (Life) Insurance
You should be aware that life insurance ISN’T for everyone. Some conditions or individuals may require the life insurance, but it doesn’t apply to everyone. You may need a life insurance if you have a family or people depending on you. The reason why people have life insurance is because they want to still be able to take care of their family even after they are gone. With the insurance, your family won’t have to worry about the final (and extra) expenses, which may cover your funeral and burial.
So, if you ever wonder is life insurance required by law, it’s a no. but having one can provide a huge help, especially in functioning as the financial safety net. The insurance also provides a kind of financial security for those being left behind. Your family may be able to continue life easier until your spouse is able to get a job. Or if your spouse has been working, the insurance money can help making the situation easier (and more bearable) to handle. Death is unexpectable, but people tend to ignore this fact. In general, we should think about the things happening after we leave the world, especially related to our families, final expenses, and funerals.
It’s a good thing life (insurance) coverage is able to cover all those things. Not only it pays for your burial and financial expenses, but it can also cover extra loose ends. In the end, your family can enjoy a sound and safe financial safety. If you die without leaving your family any insurance, they would be stressed out and confused. They are having one of the worst moments with your passing; they don’t need extra problems that may follow suit.
The life insurance may not be for those who have enough money so their family won’t have to worry about anything else even after they are gone. If the individuals have accumulated a lot of wealth for their families, then it’s okay not to have any life insurance. In this matter, is life insurance required by law isn’t the case. But it’s more to the point that a person can be wise and be thorough when it comes to leaving their families with enough ‘financial safety net’ so they won’t have to deal with extra burdens after the loss of a family member.
The Tricky Sides of Life Insurance
So, is life insurance required by law? Well, not, but having the (life) insurance itself can be tricky. It can be helpful (as well as vital) for the family, but there are also some instances that make the insurance useless and not exactly needed. In the event that you have a term life insurance, it’s possible that having it isn’t making sense anymore, especially in certain times.
What about cash value policies? Well, these kinds of policies would accumulate value; thus, providing coverage that you won’t outlive, provided that you are okay with the premiums and you can keep up with them. But this kind of insurance shouldn’t just be idle and sit there, if you really want to gain the best benefits. Universal life, Variable life, and Whole life are other types of life insurance coverage with their own specific terms and requirements.
In the end, it’s true that not everyone would need such insurance. But there are also people who should have the insurance because if they don’t, their families would be struggling hard after their passing. Now that you know that having such a policy isn’t exactly mandatory, you can decide whether you need one or not. Is life insurance required by law? Not really, but having one won’t hurt your finance.
Life Insurance and Its Different Types
You may not know this, but there are actually different types of (life) insurance policy that is meant to meet different preferences and requirements. Whether it is long or short term, or whether it is periodical or forever in its coverage, there are different choices for different people. Now that you already know the answer to the question is life insurance required by law, you can decide which life insurance would be ideal for your condition, including the sub-categories that you prefer.
- Term (Life) Insurance
This kind of insurance has its own ‘period’ (usually several years) and then ends. Commonly, the terms are available in 10, 20, or even 30 years. This one is about balancing financial strength (the long term one) with affordability, and the provider that is able to combine those elements would be able to deliver the best term insurance.
The term (life) insurance is divided into several different sub-categories, such as:
- Convertible term life insurance. This one allows the policyholders to change (or convert) to the permanent insurance
- Decreasing term life insurance. This insurance is the renewable insurance with the coverage decreasing within the life (of the policy) at predetermined rate
- Renewable term life insurance. This type offers a quote for the year when the policy is bought. The premiums generally increase in yearly basis, and this is typically the most inexpensive term insurance – in the beginning.
- Permanent (Life) Insurance
On the contrary to the term life insurance, the permanent insurance would remain effective (and stay in force) through the entire life of the insured, unless the holder surrenders the policy or they stop paying (the premiums). When compared to the term insurance, this permanent is generally more expensive. Just like term insurance, the permanent insurance has its own sub-categories too.
- Whole life insurance. This permanent insurance accumulates cash value. It means that policy holders are able to use the available cash value for various purposes, like paying policy premiums or as the source of cash or loans.
- Universal life insurance or UL. This permanent insurance has cash value component that gets interest. This type of insurance usually offers flexible premiums. Unlike the whole life and term insurance, you should be able to adjust the premiums over time. They are also designed with either an increasing death benefit or the level death benefit.
- Indexed Universal life insurance. This is the insurance that is similar to Universal life insurance, but it allows the holders to get equity-indexed or fixed rate of return for the cash value component.
- Variable Universal life insurance. This one enables the holders to invest within the cash value of the policy, and it is done in the separate account. It also offers flexible premiums and it can be designed with increasing death benefit or a level death benefit.
Who Needs the Insurance?
Although the answer to the question is life insurance required by law is a no, there are some people who seriously need to think about having the life insurance. After all, the insurance would provide financial support to the beneficiaries or the (surviving) dependents. Fail to do so, and the family may suffer. There are several types of people who need this kind of insurance.
- Adults owning property together. A death of an adult would have an impact to the one left behind, especially if the other adult can’t pay for the property’s taxes, upkeep, or loan payments anymore – whether they are married or not. Having a life insurance can be extremely helpful. A great example for this kind of insurance is engaged couple taking out a joint mortgage so they can purchase their first house.
- Parents having minor kids. If a parent passes way, the loss or the caregiving skills or income would lead to financial struggle. With the life insurance, the kids can have financial resources needed until they are able to support themselves.
- Parents with special needs adult kids. There are kids who can never be self sufficient or they need lifelong care. With life insurance, the needs of these kids can still be met and fulfilled even after their parents die. The money from the death benefit can be useful to fund special needs trust that can be managed for the benefits of these adult kids.
- Wealthy families expecting to owe the estate taxes. The life insurance is able to cover the taxes, keeping the full value (of the estate) intact.
- Young adults whose parents cosigned a loan (for them) or incurred a (private student) loan debt. Young adults, especially the ones without dependents, don’t really need life insurance. However, their parents would be related for their kids’ debt after their passing, so the kids may want to think about having enough funds to pay the debt off
- Seniors wanting to leave money to their adult kids providing their care. Many adult kids would sacrifice their time to care for their elderly parent, and their sacrifice would likely about their working time and also direct financial support. The life insurance can be helpful as it can ‘reimburse’ the costs made by these adult kids when their parents die.
- Young adults wanting to lock in the low rates. If you are healthy and young, big chances that your insurance premiums would be low. The healthier and younger you are, the lower it would be. If you have a solid financial planning and you are after the better future, you can have the life insurance even if you don’t have dependents; with the hope that your premiums will stay the same even in the future.
- Businesses with crucial key employees. When a key employee dies (like the CEO), it would likely create a serious (and probably severe) financial hardship for the company. If they have life insurance for the key employees, they won’t have to worry about a thing.
- Families who can’t afford funeral and burial expenses. In general, the cost for a funeral and burial can range from $6,000 to $12,000. The cost includes a lot of things, especially the casket, which is the priciest of all. Even having a small amount of life insurance can be helpful to honor the deceased.
Those are the general facts about life insurance, including their types and their overall benefits. Even after you know that the answer to is life insurance required by law is no, you can still consider having one as a financial option for future.