Here's When Suze Orman Says You Need Life Insurance

Going without essential life insurance coverage could cause big problems.

For many people, buying life insurance is essential for protecting loved ones by ensuring they remain financially secure even in the event of an untimely death. But when exactly does it make sense for consumers to get a life insurance policy?

There are different potential answers to this question.

But personal finance expert Suze Orman has a simple rule of thumb that may be worth following. It’s one that can help guide consumers in making the decision about whether getting covered is worth the money and effort.

Suze Orman says life insurance should be purchased in this situation

Suze Orman's advice on when to buy life insurance is very straightforward. She believes that if "there is anyone in your life who relies on your income, you need life insurance."

Orman goes on to provide some examples of the types of people who might be dependent on a potential policyholder, including:

• Young children
• Spouses
• Parents
• Siblings
• Friends

Essentially, the big test that Orman recommends involves asking whether there is anyone who a potential policy holder is currently supporting who would be unable to support themselves if that potential policyholder died today.

This could include parents if the potential policyholder is paying for home care for them. It could include siblings or friends whose lifestyle is partly or fully funded by contributions made by the person considering getting life insurance coverage.

If there are people who would struggle if the potential policyholder suddenly passed away, then Orman believes that buying life insurance to protect them is a smart move.

What type of life insurance does Orman recommend?

Not only does Orman offer some simple advice on when to buy life insurance, but she also suggests that a term life policy is the best choice.

She believes this is the right kind of coverage because "life insurance is meant to provide financial protection for those who are dependent on you at a point in your life when you have yet to build up other assets."

She goes on to explain that after a person has accumulated other assets, such as savings, that dependents could rely on, then life insurance wouldn't be needed any more. After all, dependents in this situation wouldn't be reliant on the potential policyholder's income any more. They would no longer struggle to maintain their lifestyle after the policyholder died because they would simply be able to use the saved funds to cover their costs.

Term life insurance is much less expensive than whole life insurance coverage. The tradeoff is that the death benefit with a term life policy doesn't pay out unless the policyholder dies during the coverage term. This isn't a problem though because, as Orman points out, most people don't need insurance for the rest of their lives.

Is following Orman's advice smart?

Orman is right that buying term life insurance is essential for anyone with dependents relying on them financially. But it's also important to make sure to get coverage if others rely on services a potential policyholder is providing.

For example, a stay-at-home mom may not provide income, but offers valuable services that someone might otherwise need to be paid for.

The bottom line is, it's best to have protections for loved ones rather than leave them in the lurch in case of an untimely death. Term life insurance coverage is affordable, and is a good purchase for many people, so it's absolutely worth researching life insurance companies and looking into getting covered.