Is Life Insurance Worth It?

Life insurance can provide a measure of security for your loved ones should anything happen to you. Your life insurance might cover final expenses, pay off a mortgage or handle your loved ones’ day-to-day expenses. However, you might still wonder if it’s worth it, since paying for something you may not use can seem like a waste of money.

In general, if you have anyone who depends on you for financial support, it’s valuable to have a life insurance policy for their protection and your own peace of mind. 

According to the 2023 Insurance Barometer Study by the insurance industry group Limra, 38% of American households would face financial hardship within six months if a wage earner in the household passed away, and about 30% would struggle in the first month. 

Who Usually Gets Life Insurance?

People with dependents and financial obligations that would fall to others if they died often buy life insurance. Incorporating life insurance into your financial planning is an excellent way to ensure that your loved ones are looked after once you’re gone.

According to Limra’s 2024 Insurance Barometer Study, about half of American adults have life insurance coverage. The study also reported record-high numbers of adults — 102 million — saying they need life insurance or need more coverage than they have.

Though it’s a common misconception that life insurance is only for the elderly, younger people can benefit from these policies. The younger and healthier you are when you buy life insurance, the more affordable your monthly or annual premiums are likely to be.

Limra’s report identified middle-income Americans — those with an annual household income between $50,000 and $149,999 — as the largest potential market for life insurance. According to the study, 54% of respondents at this income level expressed an intent to buy life insurance.

Advantages of Life Insurance

There are several key advantages to owning life insurance, the main ones being financial protection for loved ones and peace of mind for you. 

Another advantage of life insurance is that you can customize your coverage to suit your needs. You can choose a policy that fits your budget and add on riders to get additional benefits.

There are many different kinds of life insurance, each designed to offer specific benefits. 

Advantages of Term Life Insurance

• Generally lower premiums
• Flexible coverage options including laddering
• No-exam policies may allow you to skip a medical exam

Advantages of Permanent Life Insurance

• Has a cash value that can be borrowed against without penalty
• Options for tax-deferred growth
• Lifetime coverage doesn’t expire after a set period (assuming premiums are paid)

Term life insurance covers a specific period and can be a good investment for ensuring you don’t leave your loved ones burdened by your debts or final expenses. 

Permanent life insurance policies, on the other hand, last from the time of purchase until the policyowner’s death as long as premiums are paid.

Disadvantages of Life Insurance

Despite their benefits, a life insurance policy may not be appropriate for every situation or for every person.

Disadvantages of Life Insurance

• Permanent life insurance can be expensive and require you to pay high premiums.
• Term policy premiums go toward securing a death benefit for your beneficiaries and build no investment value.
• If you outlive your term policy, the coverage lapses and your beneficiaries get nothing.
• Costs for life insurance increases with age, and the longer you wait, the higher the premiums will be.
• You may not qualify for life insurance because of health guidelines or pre-existing medical conditions.

Cost may be a factor, you may not qualify for medical reasons or a policy may have tax implications for beneficiaries.

How To Decide if Life Insurance Is Right for You

When deciding if life insurance is right for you, it helps to look at what stage of life you’re in and determine the benefits of life insurance for you and your beneficiaries.

Someone who is single, independently wealthy or without dependents may not benefit from life insurance. On the other hand, some single people will still buy life insurance so that they might take care of a parent, sibling or business partner who is not a dependent but who might struggle financially without them.

However, for those people who have loved ones who depend on them financially, or for someone who has debts that would become the responsibility of their dependents or estate, life insurance is likely worth it. It offers financial protection to those you love and is prudent financial planning.

Alternatives to Life Insurance

If, for whatever reason, life insurance is not the right solution for you or not the right solution right now, there are alternatives to consider that can take the place of traditional life insurance.

Alternatives to Life Insurance

Annuities

Annuities are safe, customizable long-term investment contracts issued by an insurance company. They provide a reliable, steady stream of payments to support your financial needs for the rest of your life or for a predetermined number of years. Buying an annuity is a good idea if you are nearing retirement and are looking for a strategy to protect yourself from outliving your income.

Investments and Saving

Perhaps the simplest alternative to life insurance is to invest and/or save money over an extended period. If you’re willing to accept a certain amount of risk and volatility, the stock market, over time, traditionally provides solid returns for those who invest wisely. This approach is particularly helpful the earlier in life you start.

Long-Term Health Care Policies

Medical bills can be significant for many people, especially as they age or during end-of-life care. Some may benefit more from purchasing a long-term health care policy that will cover chronic illness and disability or pay for extended nursing care.

Funeral Pre-Payment Plans

As life insurance is often used to pay for final expenses, such as funeral costs, pre-paid funeral plans provide a way for people to either pay in advance or otherwise set aside money for their funeral before they pass. There are different ranges of plans, depending on your preferences, and you can pay the plans in installments directly to your chosen funeral home.