Does a Single Person Need Life Insurance?

The current full retirement age is 67 years old, up from 65 years old, and with this change came many questions from people across the country.

When we think about retirement, we wonder how we’re going to survive financially, what kind of investments we will need to make to prepare for that time to come, and so forth. One of the most popular investment opportunities discussed among corporate America is the 401K retirement savings plan. This plan lets you invest a portion of each paycheck before taxes are deducted, depending on the type of contributions made. Because of 401K tax advantages, the federal government imposes some restrictions about when you can withdraw your 401K contributions.

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The simplest way to understand this contribution savings plan is that if you borrow money before the age of 59.5, you will be subjected to a 10% penalty on top of income tax, and in some cases, your employer may or may not match your contributions. For those under the age of 50, the annual employee contribution limit is $22,500 as of 2023 and $23,000 in 2024.

But let’s say your employer does not match this, and you started your 401K savings plan at 30 years old, this leaves you with 29 years to contribute. All in all, you should have around $667,000 saved for retirement. But guess what, you’re single… so, this places you in the 37% tax tier , meaning you can expect to pay around $246,790 to the government, and this is all without an employer matching your contributions. This leaves you to retire with $420,210, and this is only if you consistently contribute to the account for 29 consecutive years.

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All during those 29 years, you are also paying into social security, Medicaid, federal, and state taxes, to name a few. Now, let’s say on paper for 29 years you earn an income of $100,000 less taxes and your 401K contributions, you will only see around $48,876 a year. From this, you have to pay rent, bills, and the cost of health insurance, not to mention your retirement should also be able to cover the cost of your burial , which as of today ranges from $8,000 - $10,000 on the lower end. 

With a take-home salary of $48,876, it’s almost impossible to save, so you’re stuck either paying rent or a 30-year fixed mortgage, that if in the event of your passing, most commonly, the responsibility falls on the surviving family members to inherit the property and maintain the mortgage payments while they arrange to sell the home. If no one takes over the mortgage after your death, the servicer will begin the process of foreclosing on the home.

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As a single woman, it is prudent to have life insurance. Relying solely on the benefits of a 401K is not the best way to build assets. Whether you have a term life insurance policy or a whole life policy, two things will happen: your funeral will be covered, and your home mortgage can be paid in full. In the interim, you can also borrow against your policy without penalties unlike a 401K. The only difference is, the more you borrow from the policy, the less the policy amount will be.

For instance, with your whole life insurance, if you have a $250,000 policy and need to borrow $50,000 for the down payment of a home, you may do so, and only have $200,000 left in the policy to be paid out in the event of your premature passing. The difference is, whoever you’ve listed as the beneficiary, that person will be paid a check to cover the cost of your mortgage or take care of your pets and so on. So, which is better? If you can manage to do both, then do it. Whole life insurance is something you can utilize while you're alive without having to deal with the hassle of anyone matching the contribution or leaving your loved ones in a state of despair should something happen to you.

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As a single woman, you still have people or pets in your life that you love and care for. Oftentimes, we hear of women who leave their estate to their pets, and the person taking care of their pet is the person with access to their life insurance payout. It’s a great way to arm yourself financially both alive and in death. Don’t be afraid to commit to something that can either help bring about generational wealth or keep your pets happy and healthy.

When choosing the best policy for you, be sure to take everything into account: your current living situation, your home life, and the future you envision for yourself. It’s also good to note that when buying a home, many mortgage lenders will count your life insurance policy as an asset. This is because, in the event of your passing, the funds will be readily available for the servicer's mortgage to be paid off in full. Mortgage lenders like to see that you’ve taken these necessary precautions to ensure that your responsibilities are not neglected, no matter the circumstance.

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We understand that talking about life insurance can be an uncomfortable topic, but it’s always worth exploring if you have some extra funds to spare. You can invest as little as $150 - $180 a month for great coverage, allow the cash value to build, and then take from it gradually. If it so happens that you don’t need the life insurance, well, you had a successful backup plan, some money to use towards things you may need right now, and security for lenders.

On the other hand, if you’re just looking for some coverage and want to plan ahead so that your family is not left to scramble and struggle to find a way to fund your funeral, then term life is the best and more affordable option. This does not build cash value, but it’s a good idea when you want to just have a ‘just in case’ for your family. Single or not, it’s good to be thoughtful and think about your loved ones; mourning you should be their only priority.

by Harley Miller