Life insurance provides benefits to surviving family members when a person dies. Depending upon the specific terms of the policy, life insurance might compensate a family for lost wages, help the family cover end-of-life medical expenses or ensure that survivors have adequate funds to pay for a burial. When someone dies without life insurance, her family may be left with reduced financial resources, forced to deal with financial problems in the midst of grief.
Life Insurance Basics
No one is obligated to get life insurance, and nothing specific happens if a person dies without life insurance. Instead, life insurance simply provides an additional financial cushion to help cover the expenses associated with losing a loved one. Some pension plans continue to pay benefits to a spouse or children for a set period of time, and Social Security survivors benefits may kick in when a spouse or parent dies.
Medical care can quickly become expensive, and the medical costs associated with a sudden death caused by an accident, heart attack or other unexpected cause can be overwhelming. Health-care bills are a leading cause of bankruptcy in the United States, but life insurance can help cover the costs of medical expenses. Life insurance also protects a family's assets by ensuring they're not lost due to such a bankruptcy.
The average cost of a funeral in 2009 -- the latest year for which statistics were available from the National Funeral Director's Association -- is $6,560. Life insurance usually covers the cost of a funeral and burial or cremation.
Taxes and Debt
If you leave behind a large estate, your survivors may have to pay estate taxes. They might also have to pay for tax-related debt you accrued during your lifetime. Life insurance can help defray these costs, making it easier for survivors to benefit from the assets that are willed to them. However, for many middle class families, estate taxes won't be an issue, and survivors are not always liable for their loved ones' debts. So taxes and debts will not be a concern for every family.
Particularly if a deceased person has young children, the lost wages associated with her death can cost her family dearly for years, interfering with college savings, cost of living and overall lifestyle. Many life insurance policies compensate a family for several years of lost wages, ensuring that survivors do not have to worry about finances as they grieve.
- National Funeral Directors Association: Statistics
- LifeQuote: 10 Reasons to Buy Life Insurance
- ABS CBN News: Four Reasons for Buying Life Insurance
- CNN Health: Medical Bills Prompt More Than 60 Percent of U.S. Bankruptcies
- CNN Money: Debt After Death
- The Guardian Life Insurance Company of America. "Why You're Not Too Young for Life Insurance." Accessed May 14, 2020.
- Nationwide. "Mortgage Protection Insurance: Use Term Life Insurance to Pay Off a Mortgage." Accessed Sept. 17, 2020.
- Federal Trade Commission. "Debts and Deceased Relatives." Accessed Sept. 17, 2020.
- Farmers Insurance. "Life Insurance for Small Business." Accessed Sept. 17, 2020.
- Mass Mutual. "Buying Life Insurance for Your Parents." Accessed Sept. 17, 2020.
- Mutual of Omaha. "Our Solutions for Children's Whole Life Insurance." Accessed Sept. 17, 2020.
- Prudential. "How Can Life Insurance Help Manage Taxes in Retirement?" Accessed Sept. 17, 2020.
- Allstate. "Life Insurance and Retirement." Accessed Sept. 17, 2020.
Van Thompson is an attorney and writer. A former martial arts instructor, he holds bachelor's degrees in music and computer science from Westchester University, and a juris doctor from Georgia State University. He is the recipient of numerous writing awards, including a 2009 CALI Legal Writing Award.