Single people with no children often don’t need life insurance because no one is relying on their income. But there are some reasons why you might need life insurance if you’re single.

If you died, who would pay for your funeral? Even a simple ceremony could be costly. If you don’t have life insurance, someone else (e.g., your relatives) may have to foot these bills. Even if you have only a small policy, the death benefits could be used to cover these expenses.

Do you have debts in excess of your assets, or do you owe money together with someone else? Perhaps you’re a joint debtor with your sister on her mortgage. If you died, she’d be responsible for the entire debt. Would she be able to make the monthly payments on her own? A life insurance policy naming her as your beneficiary could give her enough funds to cover your share of the mortgage, or perhaps to pay off the entire debt.

Finally, is it possible that your health will deteriorate? Maybe you have a family history of cancer or heart disease. If that’s the case, you might have trouble buying life insurance later when you’re older, especially if your health has begun to decline. Even if you’re single now, you may be wise to buy life insurance now before it gets too expensive or you become uninsurable. After all, you may not stay single forever.

In general, life insurance proceeds paid to you because of the death of the insured are not subject to federal income tax. To qualify for such favorable tax treatment, the life insurance contract must meet certain IRS requirements.

However, proceeds may be taxable in limited cases. For instance, if you receive the insurance proceeds in installments and interest is paid, the interest portion of the payment generated after the insured’s death is treated as taxable income. This is taxed at your ordinary income rate. The part of the installment payment that is classified as investment in the contract is not taxable, however.

If a life insurance policy is sold or otherwise transferred for valuable consideration before the insured’s death, the proceeds (except to the extent of that consideration) are generally taxable to the beneficiary, unless an exception applies. This transaction is complicated, so be sure to seek professional assistance before proceeding.

Note: Different federal income tax rules may apply to accelerated death benefits (i.e., due to a terminal or chronic illness) and to other types of life insurance benefits paid before the insured’s death (e.g., cash withdrawals, policy loans, dividends).

Life insurance has several purposes. Its most important function is to replace the earnings that would cease at the death of the insured. For businesses, life insurance is a way to protect key employees and the business itself. A third purpose is to use life insurance to pay potential estate taxes.

If you die during your earning years, your family could suffer a severe economic loss as a result of losing your current and future income. Unfortunately, your family would still have to pay its regular bills, the mortgage, and outstanding debts, and perhaps even continue saving for college and retirement. Unless you’re independently wealthy, achieving these goals may be virtually impossible for your family with the loss of your steady income. Life insurance offers a way for your family to continue living comfortably and without worry.

Employers often purchase life insurance policies on key employees to insure against the loss of services or income that might result after an employee’s death. Here, the proceeds from the policy are paid to the company. Life insurance works for business partners too, where one business partner purchases a policy to insure against the financial loss that might result from the other partner’s death or to buy out the partner’s heirs.

Life insurance is also used to pay potential federal estate taxes. Since these taxes must be paid in cash, life insurance can be a good way to ensure the fulfillment of this obligation.

You can use life insurance in several ways to help your business.

You might consider purchasing a key-person life insurance policy that covers the loss of services when a key employee or partner dies. The benefits can be used to cover any lost profit and the cost of replacing the employee or partner. The insurance is owned by your business, which also receives the benefits.

Another way to insure against the death of a business partner is through a buy-sell agreement. For example, three partners in a business each own the same amount of stock. One partner, Mr. Clark, dies, and his stock goes to his wife through his will. If the business had written a buy-sell agreement and funded it with life insurance, the surviving partners would have received a life insurance benefit when Mr. Clark died. The partners and Mrs. Clark could then have exchanged the life insurance benefit for the company stock.

Split-dollar life insurance is another benefit you can offer your employees while investing in your company. Here, the business purchases a life insurance contract on the life of an employee and shares the cost. If the employee dies, your business receives an amount equal to the premiums paid, and the employee’s beneficiary receives the remaining death benefit. If the policy is surrendered for any other reason, your business receives the cash value.

Deferred compensation that supplements a retirement plan is another option you might consider. Your company would buy a life insurance policy on the life of a key employee. The business is the owner and beneficiary. If the employee dies, the business receives the death benefit tax free. From the benefit proceeds, your business pays an annual sum to the employee’s survivors for a specified period.

Providing group life insurance as an employee benefit can also help your business by attracting and retaining employees. Group insurance is less expensive to purchase than individual insurance. Also, no medical exam may be required, depending on the size of your company. Here, the premiums are tax deductible to your business, and the benefits are paid directly to your employee’s beneficiary.

Critical illness insurance will pay you a lump sum if you become ill from–and then survive–certain illnesses or injuries. Some examples of covered illnesses are heart attack, life-threatening cancer, loss of a limb, and Alzheimer’s disease. Also covered are loss of your sight, a major organ transplant, and paralysis. You can use the lump sum whatever way you want, whether it’s related to your illness or not. The lump sum is tax free.

Ironically, the need for critical illness insurance came about because people are living longer, even with serious diseases. But it also means people have more medical expenses that can deplete their health insurance and personal savings. Critical illness insurance helps pay for uncovered medical bills and household bills. It can even provide capital to start a new home-based business.

If you are considering this type of insurance, it’s vital that you understand exactly what is covered and what is not. The insurance will pay only if you contract the illnesses listed in the policy. Even then, further limitations will be defined in the policy. For example, what does the insurance company consider to be a life-threatening cancer? If you have a family history of a certain illness, will the policy exclude that illness? Are there pre-existing condition limitations? What are the age limitations? How much does it cost? Does the premium increase as you get older? When do you receive the lump sum? Is it really offering you more than your existing health plan? Finally, be aware that if you own one of these policies and never get sick, you won’t get any money back.

Before you purchase critical illness insurance, consult your insurance agent or financial advisor.

Yes, as long as you’ve purchased a convertible term life insurance policy. Keep in mind that convertible term life insurance usually has a conversion deadline, which is the date by which you must convert. And when you do convert your policy, you can expect your premiums to increase as you’ll have permanent and not term insurance. The new premiums will be based on your age; this may be either your current age or the age at the time you took out the policy (an original date conversion). If you convert to your original age, you’ll have to pay all back premiums and interest when you convert. The good news is that you won’t have to prove your insurability (e.g., through medical exams) at the time of conversion.

If your husband left a letter of instruction, read it carefully. It may help you determine whether he had life insurance. A letter of instruction is simply a letter written by or on behalf of the deceased. It enables a surviving spouse or other person to locate important documents such as bank accounts, life insurance policies, safe deposits, or collectibles.

If your husband died without such a letter and you are trying to discover whether he had life insurance, there are several things you can do:

• Contact any family members whom your husband may have confided in. They may know if he had life insurance and from whom it was purchased.
• Ask your husband’s lawyer, estate executor, banker, accountant, or financial planner whether they know of a life insurance policy.
• Talk to your husband’s auto and home insurance agents. Often, consumers purchase one or more insurance products through the same agent. They may have sold your husband a policy or referred him to someone who did.
• Has your husband’s estate been probated? If it has, check the court records for details of the estate. Sometimes, the life insurance policy will show up as an asset.
• Did your husband have group life insurance through an employer? Speak to his former employers to make this determination.
• Perhaps your husband had a safe-deposit box. You may want to contact some of your local banks to see if there is a safe-deposit box account in your husband’s name.
• Look at any canceled checks, bank accounts, and credit card statements to see if your husband made any premium payments to an insurance company. Next, follow up with each company to see what the payment was for.

Remember, the insurance company is not obliged to notify you about the life insurance policy even if you are the spouse. Typically, the insurance company does nothing until someone notifies it and files a death benefit claim. This is usually done by the owner (if not the insured), the beneficiary, or the estate of the insured.

Although the above is no guarantee of success, some investigation will give you at least a chance of locating an existing policy.

To answer this question, you must first answer several related questions. How big a financial burden would your death leave for others to deal with? How much of your salary is devoted to current expenses and future needs? How long would your dependents need support if you were to die tomorrow? How much would it cost to pay all of your final expenses?

When determining your life insurance need, you’ll need to consider your life stage and circumstances. Marital status, number of dependents, size and nature of financial obligations, career stage, and your intentions to pass on your property are all important factors you’ll want to think about. Your need for life insurance changes as the circumstances of your life change. For example, you may be able to reduce the amount of life insurance coverage that you have once your children have grown and are on their own.

There are several methods you can use to calculate the appropriate level of insurance for you and your situation. Although they all share common features, some methods strive to be more simplistic, such as the income replacement method and rules of thumb. Others, such as the family needs approach and the capital needs method, involve more sophisticated calculations. You may want to investigate these methods and do some preliminary calculations to provide a basis for possible discussions with your financial planner.

Keep in mind that the worst mistake you can make concerning life insurance is to have a need and not have the insurance to cover that need. Having too little (or even too much) insurance can also be a problem. Proper insurance planning can provide peace of mind for you, as well as protection for those you care about.

Many companies offer their workers employer-sponsored life insurance coverage as part of their employee benefits package. If you are offered this opportunity, it is probably in your best interest to accept. Buying life insurance through your employer can be a relatively inexpensive and hassle-free way to get some of the life insurance coverage you need.

With a group life insurance plan, your employer purchases a single policy that covers all employees. This policy is subject to a single group premium payment. Some employers may pay the entire cost of the group policy (which is tax deductible to the employer). But if the plan requires you to pay a portion of the group premium, that amount will probably be lower than what you would pay for an individual insurance policy. And you generally don’t need to pass a medical exam when applying for group life insurance.

The major disadvantage of employer-sponsored life insurance is that it isn’t portable. If you leave your job, your group life insurance coverage will end, unless you’re allowed to convert your group coverage to an individual policy (which may cost significantly more). This could leave you underprotected if you’re unable to qualify for a new policy at a reasonable cost because of your age or changes in your health. And if you’re required to pay the group premium out of your own pocket, you could decide not to participate in the group plan if you find a less expensive rate with an individual policy.

Another disadvantage to group life insurance is that the policy may not be tailored to your individual needs. For example, the amount of coverage may be less than what you require to be fully protected. If so, the group policy may give you the option of purchasing more coverage for an additional cost and for which you may be asked to answer medical questions. But even if you end up buying supplemental insurance through a separate company, your employer-sponsored plan gives you a head start in meeting your life insurance needs.

If you become disabled and your life insurance policy contains a waiver-of-premium benefit, you will not have to pay the life insurance premiums as long as you are disabled. However, the disability must be total and must last for at least six months. Certain exclusions also apply.

Some life insurance contracts automatically provide the waiver-of-premium benefit. For most contracts, the benefit is optional, and when you apply for coverage, you must ask that a rider be attached to your policy to receive the benefit. In the latter case, you will pay an additional premium. Call your agent or check your policy to find out if you have this benefit.

Life insurance policies specifically require that the disability be total. The definition of total disability depends on your contract. Most contracts define it as disability resulting from injury or disease that prevents the insured from engaging in any occupation for which he or she is trained by education and experience. Read your policy carefully to be sure you understand your insurance company’s definition.

The waiver-of-premium provision has a waiting period of six months. That is, the insurance company waits six months from the beginning of your disability before it actually waives the premium. So, you must continue to pay life insurance premiums until the six months have passed, regardless of the severity of your disability. If the waiting period is over and you are still totally disabled, the insurance company will waive the premiums retroactively.

There are some injuries for which the waiver-of-premium provision does not apply. These exclusions include intentional self-inflicted injuries and those resulting from war while the insured is in the military. Also, contracts may limit the benefit to those under the age of 60.

Since the main purpose of life insurance is to protect against financial loss when someone dies, it’s often better to wait until your child reaches adulthood to purchase life insurance. Although your child’s death would be a tragedy, it would probably not affect your family much financially unless he or she was earning a substantial amount of income for the family.

However, there are a few reasons why you might purchase life insurance on your child. For instance, you might buy life insurance on your young child so you can take advantage of the rates, which are lower for healthy children than for adults. Your employer may even offer inexpensive term coverage for dependents. Purchasing a policy while your child is healthy can also guarantee that your child will be protected throughout adulthood, even if he or she becomes ill, works in a hazardous occupation, engages in dangerous activities, or becomes uninsurable for other reasons.

Some parents also buy term insurance policies on their children to cover the time period when they are paying for their children to attend college or graduate school. If a child dies during this period, the death benefit can be used to help pay off college debt.

To find out if buying life insurance for your child makes sense in your situation, talk to a trusted insurance advisor.