Dave Ramsey Said There Are 3 Reasons You Need Term Life Insurance. Is He Right?

This Ramsey advice might help clarify whether life insurance is a necessary purchase.

Who really needs life insurance? This can be a complicated question to answer, especially since it's important to think about both current and future situations when deciding whether it makes sense to spend hard-earned money from your bank account on this kind of insurance protection.

If you're on the fence about whether buying life insurance makes sense for you, perhaps some clarity could come from this advice from Dave Ramsey on three reasons why a term life policy could be necessary.

Ramsey has identified three situations when coverage is needed -- but is he right about all of them? Here's what they are, along with some tips to help would-be policyholder's decide whether Ramsey's advice applies in their situations.

1. Life insurance is necessary for people who have others relying on their income

Ramsey believes it's important to have a life insurance policy in place in situations where anyone depends on the policyholder's income to cover their daily expenses.

This is 100% correct. If a would-be life insurance buyer has a spouse who needs help covering their mortgage or kids who need expensive childcare, then life insurance is a must-buy. Otherwise, an untimely death could throw loved ones into financial turmoil when they're unable to afford the basic costs of their day-to-day life.

Those without an income also may need life insurance, though. A stay-at-home parent or a caregiver of disabled or aging loved ones may not make money for the work they do, but it would cost a lot to pay someone to do these services in the event of the parent or caregiver's death.

2. Life insurance is necessary for people with outstanding consumer debt

Ramsey also said life insurance is needed for people who have consumer debt or a mortgage. And that's true if surviving loved ones would want to keep the house, if the debt is joint debt, or if there could be problems paying it off in the event of an untimely death.

Outside of these situations, debt alone isn't necessarily reason enough to buy a life insurance policy. Individual debt that's not jointly owned and that isn't secured does not necessarily have to be repaid in the event of a death. If someone dies with a credit card bill but no assets, the creditor simply can't collect. Alternatively, if someone dies with a credit card bill and money or property in their estate, the creditor could collect from the estate's assets.

So, consider what debts would need to be repaid and what other resources are available to cover them before buying life insurance just to make sure creditors are taken care of.

3. Life insurance is necessary for people who aren't yet self-insured

Finally, Ramsey said life insurance is needed for anyone who isn't self-insured. He defines self-insured this way: "You have enough money saved in investments that it grows enough each year to replace your income."

Most people eventually become self-insured, but this can take a while. Young people who haven't yet hit this milestone and whose income is needed should heed this Ramsey advice and get covered.