Why you need life insurance during a recession

Many people only think about life insurance when times are good. When they're young and healthy — or happily married, with kids on the way and their career in full swing — they're aware of the things they want to protect.

But when times are tough, we tend to focus simply on survival. If we're struggling to pay for everyday expenses, it's hard to see the value in investments that seem like extras.

In an economic downturn or a recession, life insurance is more important than ever. That's because even amidst constant economic turmoil, a strong life insurance portfolio can protect your most valuable resource – you!

What's an economic recession?

Just like life, with its many difficulties, the economy has good times and bad. You've likely noticed that the price of gas, groceries and everything in between seems to be going up. As inflation has a bigger impact on our everyday lives, talks of a recession seem to dominate financial news.

What's a recession? It's recognized as a significant decline in economic activity that lasts for two consecutive quarters or more. It's the opposite of an economic expansion when the economy grows for two or more consecutive quarters.

Many Americans have already lived through at least one recession — the most recent, the Great Recession, lasted from December 2007 to June 2009 and was the longest economic downturn since World War II.

The economy is constantly expanding and contracting, making economic slowdowns inevitable. That's why it's important to have a financial plan and review it regularly. Actions like following a budget might help you feel more in control when it seems like your household income is being stretched to its limit.

Your budget likely includes things like retirement and vacation savings, as well as building an emergency fund. It should also include premiums for a life insurance policy.

Who needs life insurance?

Life insurance is an important tool in your financial plan — especially if you have dependents or a partner who relies on your income.

And while life insurance is crucial if you are the primary earner in your home, every life has a value and is worth protecting. After all, you buy life insurance because those you care about are relying on you to keep living.

Even if you don't earn an income in a formal sense, think about all that would change if you weren't here. A lot of those changes would come with a steep price tag. Life insurance can help protect that.

Life insurance as a safety net

A life insurance policy can be one of the best ways to protect your loved ones. In periods of economic recession, the loss of your income could be a particularly hard blow to your family.

Would they be able to stay in their home? Could they pay your final expenses and funeral costs? Will they be able to pay monthly expenses? How will your children one day afford college?

It may seem counterintuitive to add — or maintain — the expense of a life insurance policy when money is tight. But here's some good news: Life insurance often isn't as expensive as many people expect, nor as hard to get.

If you're young and healthy, for example, you may be able to get affordable rates with a term insurance policy. On the other hand, if you're worried about your health and are concerned buying a policy will be complicated, you could opt for a guaranteed issue policy, which likely won't require a medical exam.

If you already have coverage, you may be able to adjust your life insurance plan to something that's more manageable with help from a professional.

Life insurance can help with everyday expenses.

Life insurance doesn't just cover your death. It can also help with living expenses, which is especially important during a recession. Policies like whole life or universal life often include a cash value component that accumulates over time.

Think of it as another financial resource. You can borrow against the cash value component and repay accordingly, or you can withdraw cash from the policy, keeping in mind that doing so likely will reduce the death benefit your loved ones will receive in the future. This money can be used for things like bills, groceries, tuition, debts and more in times of financial trouble.

Life insurance can protect your retirement funds.

When a recession appears imminent, many people start to worry about the value of their investment portfolios and retirement funds. But they don't often think about their life insurance.

While some types of life insurance death benefits may fluctuate, most are set. For example, if you have a term life insurance policy, your full death benefit will be paid out to your beneficiaries regardless of how the market is performing.

While this may offer you peace of mind during the market's unpredictable ups and downs, it may be imperative for those living in retirement. For example, if an economic cycle has impacted your retirement savings towards the end of life, life insurance proceeds may provide a much-needed lift to depleted retirement assets.

Life insurance is a good defense.

Your first instinct in a recession or an economic downturn might be to find ways to cut costs or trim excess expenses from your budget.

But think twice before making changes that would reduce or eliminate your life insurance. This truly is an investment in your family that can help ensure financial security for you and your loved ones — not only during a recession, but also when things are going well.

The peace of mind that comes from knowing your family won't face a financial struggle after your death can be invaluable.