Life Insurance: What To Do If You Don't Have It

Life insurance is a topic that many people avoid thinking about, but it's an important financial safety net that can provide peace of mind and protect your loved ones in the event of your death. Without life insurance, your family may struggle with funeral costs, unpaid debts, and other expenses. In this article, we will explore the potential consequences of not having life insurance and why it's important to secure a policy, even if you're young and healthy. We will also discuss the different types of life insurance available and provide tips on how to choose the right coverage for your needs.

Your family will have to pay for your funeral and burial out of pocket

If you don't have life insurance, your family will have to pay for your funeral and burial out of pocket. This can be a huge financial burden, as funerals are expensive. The median cost of a funeral with a viewing and burial is around $7,848, while a funeral with a viewing and cremation is expected to be approximately $6,260 to $6,970.

If your family is unable to cover these costs, they may have to take out a loan, arrange a payment plan with the funeral home, or launch a crowdfunding campaign. They could also seek assistance from government programs, non-profit organizations, or the Social Security Administration, which offers a $255 lump-sum death benefit to qualifying individuals.

To avoid placing a financial strain on your loved ones, you may want to consider purchasing burial insurance, which is specifically designed to cover final expenses. This type of insurance typically has a small death benefit, ranging from $5,000 to $25,000, and does not require a medical exam for enrollment. Alternatively, you could opt for a more comprehensive life insurance policy that includes a death benefit to cover funeral costs and other final expenses.

Your family will have to deal with any taxes and debts themselves

If you don't have life insurance, your family will have to deal with any taxes and debts themselves. This means that your loved ones won't receive an insurance payout and could be left responsible for covering funeral costs, unpaid debts, and other expenses.

In the US, federal student loans are forgiven upon a person's death, but tax debts are not. If there is any money in the deceased's estate, the IRS will be the first to get paid. While beneficiaries don't directly inherit unpaid tax bills, these must be settled before any money is distributed to beneficiaries. The executor of the will is responsible for filing the deceased person's final income tax return and paying any outstanding taxes.

If the deceased had outstanding debts, their assets will be used to pay them off. If there is no will, the estate will go through probate, where a judge determines how the assets are distributed. If there is a will, the person in charge of the estate (either an attorney or an executor named in the will) will be responsible for paying off the debts.

If the deceased's family was dependent on them for living expenses, they will receive a "family allowance" to cover these costs. After that, federal taxes are paid, followed by medical expenses not covered by insurance, property taxes, and then credit card and personal loan debts. Secured debts, such as car loans or mortgages, will also need to be paid off or refinanced.

In addition to taxes and debts, the loss of your income could put a strain on your family. Your spouse might struggle to pay the mortgage or cover other living expenses, and they may have to re-enter the workforce or give up other financial commitments, such as saving for a child's college tuition.

To avoid these potential issues, it's important to consider whether you need life insurance. Ask yourself if your family would struggle to pay for your funeral, the mortgage, or daily living expenses if you were to die. If the answer is yes, then purchasing life insurance could be a good idea.

Your family will have less financial security

Life insurance is designed to protect your family and loved ones when you pass away. If you are responsible for the financial security of a partner, child, disabled relative, or aging parent, life insurance is a smart way to ensure they will have financial security in the future.

Life insurance can help provide peace of mind that your family will have some financial protection upon your passing. The death benefit can provide assistance with mortgage payments, care for disabled relatives, and basic needs like food and childcare. It could allow your loved ones to maintain their current standard of living without worrying about lost income.

The cost of final expenses, such as caskets and burial plots, can often amount to thousands of dollars. Life insurance can help pay for things like cremation, burial, and funeral services, saving your family from a hefty out-of-pocket cost.

Additionally, if you pass away from a health-related issue that incurs substantial medical bills, your life insurance policy could help your loved ones pay for those expenses. Life insurance can also help cover the cost of end-of-life care, so your family doesn't inherit that debt.

If you have a partner, your income may be contributing to shared living expenses, such as rent or mortgage, utilities, groceries, and other daily costs. Without your income, your partner might struggle to maintain the same standard of living or pay for basic necessities.

If you have children, they are financially dependent on you, and life insurance can help provide for their future. It can also help cover the cost of their education, reducing the need for student loans.

Even if you don't have a partner or children, consider other family members who may be financially dependent on you, such as aging parents or disabled relatives. Life insurance can help ensure their financial security and protect them from potential financial hardship.

In summary, life insurance is a valuable tool to protect your loved ones financially in the event of your death. It can help cover final expenses, medical bills, and ensure your family maintains their standard of living. By purchasing life insurance, you can have peace of mind knowing that your family will have some financial security, even when you're gone.

Your income will disappear, leaving your family to cover regular bills and expenses

If you don't have life insurance and your income disappears, your family will be left to cover regular bills and expenses. This can cause significant financial strain and hardship, especially if they were financially dependent on you. Here are some steps you can take to mitigate the impact on your family:

• Assess your financial situation: Understand your income, expenses, and financial goals. Calculate your after-tax income, as this is the money you can spend or save. Identify your critical costs, such as rent or mortgage payments, utilities, groceries, transportation, insurance premiums, and debt repayments.
• Create a budget: Allocate your income across different categories. A common budgeting rule is the 50/30/20 rule, where 50% of your income goes to needs, 30% to wants, and 20% to savings. However, you may need to adjust these percentages based on your circumstances.
• Prioritize essential expenses: Ensure that your basic needs, such as housing, food, and utilities, are covered first. These are non-discretionary expenses that are necessary for survival.
• Reduce discretionary spending: Discretionary spending includes non-essential items like vacations, luxury goods, and entertainment. Reducing this type of spending can help free up money for essential expenses and savings.
• Build an emergency fund: Aim to save at least three months' worth of expenses in a dedicated emergency fund. This will provide a financial cushion in case of unexpected costs, such as car repairs or medical bills.
• Increase income or cut costs: Consider ways to boost your income, such as through a side hustle or safe investments. If increasing income is not feasible, look for areas where you can cut costs, such as shopping around for cheaper insurance plans or cutting back on non-essential expenses.
• Seek financial advice: If you are unsure how to manage your finances or create a budget, consider seeking help from a financial advisor or credit counselor. They can provide personalized recommendations and guidance to ensure your family's financial security.

Remember, the loss of your income can have a significant impact on your family's financial stability. By taking proactive steps to manage your finances and expenses, you can help reduce the burden on your loved ones in the event of your absence.

Your family may need to crowdfund your funeral

Crowdfunding has become an increasingly popular way to cover funeral costs. In 2018, funeral cost appeals on one site increased by as much as 72% in six months.

If you don't have life insurance, your family may need to crowdfund your funeral. Here are some steps to help them succeed:

Choose a funeral home

Before starting a crowdfunding campaign, your family should choose a funeral home they trust and understand the costs involved in providing the funeral and burial they want. This will help them set a clear and realistic fundraising goal.

Choose a crowdfunding site

There are many crowdfunding websites to choose from, including popular options like Crowdfunder, GoFundMe, GoGetFunding, and JustGiving. When selecting a site, your family should consider factors such as fees, payment methods, and whether the site will still pay out the donations if the fundraising goal is not met.

Create a compelling campaign description

To maximise the chances of contributions, your family should create a campaign description that tells your story in a compelling way. They can include photos or videos of you, as well as uplifting images and memories that reflect your spirit and life. The campaign description should also include details about the funds, such as what they will be used for and when they are needed by.

Spread the word

To reach potential donors, your family should share the fundraiser link with their friends and community groups. They can also use social media to spread the word and reach a wider audience.

Be aware of taxes and fees

If the crowdfunding campaign is successful, your family should be aware that there may be taxes and fees involved. For example, in the US, the IRS has a threshold of $20,000 or 200 donations, after which they are obligated to report the campaign and may owe taxes on the money raised. Additionally, they should check if the crowdfunding site charges any processing fees or collects a percentage of donations.

By following these steps, your family can effectively crowdfund your funeral expenses and give you a meaningful send-off.

Frequently asked questions