Why Parents Should Buy Life Insurance Even if — Especially if — Their Net Worth Is Low

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Parents with low net worth may think life insurance isn’t necessary because they don’t have much in the way of assets to leave to their beneficiaries. However, financial and insurance experts say that’s a misconception.

Life insurance can not only protect what you do have — it can help your kids and heirs build wealth over time. Here are seven reasons why parents should buy life insurance, regardless of their net worth.

1. Life Insurance Can Create Assets

Life insurance is one way for lower-earning individuals to leave their kids a financial cushion far greater in value than their net worth at the time of their death, according to Cynthia Campos Delgado, founder and financial advisor at Campos Wealth Management.

“Many times, [insurance can be] much larger than what they can accumulate on their own,” she said. “Life insurance is buying a set amount of coverage, or death benefit, usually in a large amount.”

2. It Helps Avoid Financial Emergency

When a family doesn’t have much set aside in savings, the sudden loss of a loved one can quickly become a financial emergency, according to Amanda Hamala, senior vice president and general manager at USAA Life Insurance. “Life insurance acts like a safety net — especially when times are tough.”

This is especially true if the person who passes away was earning income or contributing to the household in other ways. “Even a modest policy can keep the family from falling into crisis mode and give loved ones time to grieve without the added pressure of unpaid bills.”

Hamala noted that even a $20 monthly policy can mean the difference between stability and a financial tailspin for a family earning $40,000 a year.

3. Employer-Provided Life Insurance May Not Be Enough

While many people get a low amount of life insurance through their employer, it comes with a problem. “[O]nce employment is terminated,” Delgado said, “the coverage usually is as well.”

Additionally, the cost of insurance increases as the participant gets older.  If an employee opted to participate and many years later, chose to stop working, the cost of the same insurance “would be significantly higher due to age and the loss of the group rate.”

4. Funerals Are Expensive

While your personal costs end when you pass, your family’s don’t. Hamala said funeral expenses can range from $8,000 to $15,000, and most families don’t have that much sitting in a bank account.

Additionally, debts that persist past a loved one’s death, along with lost income, “can ripple through a family for years, affecting rent, food, and children’s futures,” Hamala said.

Life insurance, she added, “buys time, dignity, and breathing room — three things every family deserves during a loss.”

5. It Makes Funds Available Outside of Probate

Life insurance is also a way to provide financial support to your loved ones without getting tied up in probate — the legal process that occurs when there’s no will, or when a will is being contested, according to Tyler Livingston, an estate planning and probate attorney at Coker, Robb & Cannon.

“A life insurance policy typically pays out directly to the named beneficiaries,” Livingston said. “These funds can help cover immediate needs like rent, bills, groceries, or tuition — without waiting for a will to be processed or an estate to be settled.”

6. It Can Help Kids With Their Futures

A life insurance payout can cover immediate costs, but it can also help fund future goals, such as education, a home purchase, or even seed money for a business, depending on how the policy is structured and distributed, Livingston noted.

“When paired with an estate plan or trust, life insurance may offer a way to protect and preserve wealth for children or other heirs, even when the overall estate is modest,” he said.

Additionally, Delgado emphasized that life insurance benefits are typically tax-free, which means your beneficiaries could receive a large lump sum they’re free to use or invest however they choose. “The doors to opportunities are open when you have a significant amount to utilize,” she said.

7. Even Divorcing Parents Should Get Insurance

If you’re considering or going through a divorce, you should still consider life insurance — particularly term life insurance, according to Melissa Murphy Pavone, a certified financial planner and the founder of Mindful Divorce Partners.

“Divorce doesn’t eliminate financial obligations. It often cements them in legally binding agreements,” she said. If one parent is ordered to pay child support or maintenance (alimony), term life insurance can be a useful tool to ensure those future payments are protected.

“If the paying spouse were to pass away unexpectedly, the receiving spouse and children could be left without essential financial support, potentially facing serious hardship.”

Additionally, many divorcing parents don’t realize that group life insurance policies may allow the insured to change beneficiaries at any time — often without notifying the other parent, Pavone explained. “With an individual term life policy, beneficiary designations can be clearly outlined in the divorce agreement, and steps can be taken to ensure transparency and accountability.”

Ultimately, parents with low net worth can’t afford not to have life insurance — it creates a financial safety net for today’s expenses and helps kids build a more secure financial future.

Looking to build a legacy? Check out our Life to Legacy guide for expert advice and smart moves you can make today.

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