Is Life Insurance Worth It?

If someone depends on you financially, you should consider buying life insurance. Life insurance is considered a key element to feel financially secure, according to the 2022 LIMRA Insurance Barometer Study. Life insurance offers a death benefit, which can fill financial coverage gaps if you were to pass away.

Common ways to use a life insurance death benefit are for burial expenses, mortgage costs, children’s college funding, outstanding debt and everyday expenses.

If you have a family, and you don’t get life insurance, you could be risking their financial security. According to the same LIRMA study, roughly 44% of U.S. households would face financial hardship within six months if the primary wage earner passed away.

“For someone with a family that depends on their earnings in household management that would require payment if that person was gone, not having life insurance can be very detrimental to the family finances. I occasionally see GoFundMe campaigns for situations that could have been managed much better with a life insurance policy,” Wade Pfau, Co-Director of the American College Center for Retirement Income, told RetireGuide.

If you have no dependents, mortgage or debt, you could go without life insurance if you have some savings set aside for burial costs. According to Lincoln Heritage Funeral Advantage, the average funeral costs between $7,000 and $12,0000.

Life insurance may not be worth it if you’ve waited too long to purchase a policy, or if your health has deteriorated too far. Your age and overall health influence your premium costs for life insurance. The premium cost could be too high for your life insurance policy to be beneficial in the long run.

It’s also important to note that the type of life insurance policy you choose will determine if it is worth it or not. Term and permanent are the two main types of life insurance. They both have drawbacks and advantages that will make one better suited for your lifestyle and financial goals over another.

Term life insurance would be worth it to you if you only need coverage for a limited period. Term policies offer coverage for 10, 20 or 30 years. According to the Insurance Information Institute, term policies are more affordable than permanent policies.

The biggest drawback of term life insurance is that if you outlive your policy, there is no death benefit. However, some purchase term life insurance just to provide peace of mind for their children.

You could purchase a 20-year policy to only provide coverage until your kids grow up and can financially depend on themselves. If this is your intention with purchasing a life insurance policy — a term policy would be worth it for you.

Since term policies are more affordable, you can typically get a low premium cost, even if you’re an older adult.

For example, if you’re 60-years-old looking to get a 10-year term policy with $250,000 of coverage from Progressive, your premium would likely be around $56 a month.

If you want a guaranteed death benefit with lifelong coverage, term life insurance would not be a good fit for you.

If you need lifelong coverage, and can afford potentially costly premiums, permanent life insurance would likely be worth it for you.

Permanent life insurance policies build a tax-deferred cash value. With most permanent policies, you can borrow against this value.

There are two main types of permanent life insurance policies — whole and universal. There are different pros and cons to each type of permanent policy.

Permanent life insurance would not be worth it if you don’t need lifelong coverage. The lifelong coverage comes with costly premiums. If you don’t need lifelong coverage, you should consider term life insurance instead.

There are many factors that influence which type of life insurance would be best for you. It’s difficult to claim one life insurance is better than another when only considering your age. However, your age is the biggest factor in influencing your premium costs.

No matter what type of policy you have, the younger you are, the more affordable your premiums will be. However, some policies have bigger premium price differences compared to others.

For example, the price difference between a 30-year-old and 60-year-old for a 10-year term policy with $1 million of coverage is $203.34. For a whole life policy with $1 million of coverage, the price difference between a 30-year-old and 60-year-old is $948.06.

If you’re older, you may not be able to afford a permanent policy, such as universal or whole life. Term life insurance would likely be a better option for you.

If you’re younger, you could secure lifelong coverage with a permanent life insurance policy at an affordable price. However, if you don’t need lifelong coverage, you could also benefit from a term policy with an even lower premium.

Note that the estimated premiums are based on $1 million of coverage. If you don’t believe you need that much coverage, your premiums will be cheaper. You can always reach out to a financial advisor or use a life insurance calculator to help you figure out how much life insurance coverage you need.

The pros and cons of life insurance vary, depending on what type of life insurance you’re looking to purchase. Term and permanent life insurance are the two main types. They have different advantages and drawbacks, making one likely better suited for your needs over another.

Term is the most affordable type of life insurance, but it offers limited coverage. The two main types of permanent life insurance, whole and universal, both offer lifelong coverage. Between the two, whole life insurance is generally more expensive than universal life insurance.

Your premium cost and death benefit varies between the different types of life insurance. Some policies have a set death benefit amount and premiums, while others are flexible. If your death benefit and premiums are flexible, you can alter the amounts and payment schedule.

While life insurance can be considered a beneficial investment to provide financial security for your loved ones, your life insurance policy should be viewed as a safety net of financial assurance, not as an investment tool.

“I don’t really like to frame insurance products as investments. It is possible that, on an after-tax basis, the cash value can be competitive with certain types of investments, but the primary motivation for getting life insurance should be based on its insurance benefits, not potential cash value growth,” Wade Pfau, Co-Director of the American College Center for Retirement Income, told RetireGuide.

You should consider stocks, bonds, CDs or an exchange-traded fund (EFT) as good investing tools instead of life insurance. The main goal of an investment is to achieve your financial goals. Life insurance’s main goal is to protect your loved ones if you were to pass away.

While you can grow some wealth with a permanent policy’s cash value component, you would have better luck investing with stocks or bonds.