Is life insurance worth it?

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By Sarah Young  |   Last updated on January 27th, 2023 at 3:12 pm

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Nothing beats the peace of mind that comes with knowing that your loved ones will have help after you’re gone. That’s why purchasing a life insurance policy is so important. It can feel overwhelming to know when and if you should purchase life insurance. If you’re asking yourself “is life insurance worth it”, we can confirm that in most cases it most certainly is.

There are many questions to ask your self when considering life insurance. “What are my life insurance options? How about life insurance costs? What is the difference between a term policy and whole life coverage?”

When you buy life insurance, you in some ways buy peace of mind. Let’s explore the types of life insurance, how life insurance works, and if now is the right time for you to purchase a life insurance policy.

What is life insurance?

Put simply, life insurance is income replacement. Life insurance plans help provide financial security to your family when you are gone .When you purchase a policy, you’re paying a premium to your provider who agrees to pay the amount (a.k.a. a death benefit) to your dependents if you were to pass away. A secure life insurance plan helps to provide your loved ones with long-term financial stability. It can be reassuring to know that coverages such as final expense insurance, or lost income coverage, can help provide financial support. Your loved ones be taken care of when you protect their financial situation with a life insurance policy. There are two main types of life insurance:

Overview of term vs. whole

Term life insurance is a type of insurance policy that provides coverage for a specific amount of time; in most cases somewhere from one to 30 years. When you purchase a term life insurance policy, if you pass away during the covered period of time, the insurance company then pays a death benefit to whomever you have named as the beneficiaries of your policy. However, if you are still alive once the policy ends, your insurance company does not pay out anything at all, and your coverage stops.

Whole life insurance, the second type we’ll talk about in this post, is a bit more complicated than term life policies. It is also typically the more expensive life insurance. Whole life insurance is permanent life insurance that both pays out a death benefit and builds up a cash value over time. This means that a portion of each premium payment you make is channeled into a savings component of your policy, called its “cash value”.

In some situations, depending on your company and policy, you can choose to withdraw from these funds, or borrow against the amount. Whole life insurance is the most common type of life insurance, and, with this type of policy, you are covered for your entire life, as long as you’re consistent with paying premiums on time.

Younger is better

You may be fortunate enough to be at a point in your life where you’re young and healthy, but that doesn’t mean it’s not worth it to look ahead. For example, taking out a life insurance policy earlier in life can let you lock in better rates for the long term. Additionally, if you own property together with another adult, a life insurance policy can help them keep up rent or mortgage payments in the event of your passing.

Reasons you need life insurance (even at a young age)

Even if you are young and healthy, life insurance may be smart move. Here are some of the reasons you may need life insurance:

You’re going to have a baby

If your income disappeared, your minor children, who are unable to support themselves, would most likely be put at a severe disadvantage. The same is true if they will rely on you to help pay for their education or offer disability support.

You’re getting married

If you’re creating a life with your partner and they rely on your salary to pay for things like household spending, losing your income contributions could be disastrous for them.

You support your parents financially

If you are providing for an aging parent, life insurance can help your loved ones find new sources of assistance if you pass away.

You have private student loan debt

Your debts do not simply vanish when you pass away. People tasked with settling your estate’s debt who didn’t follow probate laws, co-signers on a loan, joint owners or account holders, spouses in community property states like California and Texas, and people tasked with settling your estate’s debt who didn’t follow probate laws could all be on the hook to pay your debts.

You work for yourself

If you work for yourself, you’ll need to consider the consequences of your death if you have a business partner or staff. To keep things running, you could take up a life insurance policy with your company partner as the beneficiary.

You have a high-risk job

You have a higher risk of mortality if you work in a dangerous or high-risk environment than if you sit at a desk all day. A larger premium is usually paid for in jobs like aviation, construction, firefighting, mining, oil and natural gas, and a few other fields.

You have extreme hobbies

If you’re a thrill seeker who loves extreme sports, a life insurance company will most likely consider you a higher-risk customer. However, it’s similar to having a high-risk job: you’ll pay more for insurance, but the expense is justified given your risk of dying from unnatural causes.

Who doesn’t need life insurance?

You can probably avoid buying a life insurance policy if no one in your life would be financially impacted by your death. For the time being, you may find that saving and investing in other assets — such as stocks, bonds, retirement funds, or real estate — is a better option.

Keep in mind that your life insurance coverage will be more reasonable if you are younger and healthier. If you anticipate significant life changes, it may be worthwhile to consider your options in order to lock in competitive pricing.

Should young people buy term or whole life insurance?

Term life insurance is, in general, the cheaper and more flexible alternative, and thus the preferable choice for the majority of people. You can customize term life insurance to cover the years of your life when your death would have the greatest impact on your loved ones, and then review the policy when they can sustain themselves without your life insurance.

How much life insurance should I get?

Of course your own financial security should be factored in when buying life insurance. While life insurance is a worthwhile investment, it’s important to remember that you will likely have monthly payments on your policy. The amount of life insurance you purchase will have a direct impact on the amount of your premium payments.

When considering purchasing a term life insurance policy or whole life insurance, consider who is financially dependent on you, and what is your medical history, your life expectancy. In the matter of an untimely death, what will happen with your outstanding debts? Which policy can accumulate cash? How much of a death benefit amount would provide the financial protection you and your family need.

Online insurance calculators, like this one from NerdWallet, are a wonderful place to start when shopping for coverage. They’ll ask you questions about your lifestyle and requirements to help you figure out how much coverage you need.

You can also calculate how much life insurance you need manually with a few simple steps:

  • Multiply your annual income by the number of years you want the insurance to cover.
  • Add any fixed expenses (like kids’ college tuition).
  • Finally, subtract any non-retirement savings or investments you have that could cover some of these costs in lieu of an insurance benefit.

Should I use group life insurance through my job?

As a benefit, many employers provide free life insurance. Basic group life insurance policies are sometimes referred to as employer-provided life insurance policies. Coverage is almost always guaranteed, which means you won’t have to undergo a medical exam or answer any health-related questions to be eligible.

There’s no reason not to accept a basic life insurance policy because it’s free and often provides guaranteed coverage. All you have to do is sign up, and enrollment may be automatic in some cases.

What is supplemental life insurance?

Supplemental life insurance is a type of insurance that offers an extra layer of protection to an existing policy. Supplemental insurance is coverage that you buy in addition to your primary policy. Often known as employee-paid or voluntary life insurance, supplemental life insurance is typically purchased from your company. It can help assist with financial matters, and can be used as an additional death benefit. Private insurers can also provide coverage.

Now that your life insurance questions have been resolved, we can help you with your non-life insurance needs! Check out all of the great products we offer.  Contact us or get a quote today.



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