Depending on your time in life, your career, and your family situation, you may feel the need to purchase life insurance. But before you sign up for a life insurance policy, you want to get all the facts. Is life insurance really worth the money, or is it a waste of resources that would be better spent elsewhere?

Life insurance may be worth the money if you have family members who depend on your income or you’re worried about end of life expenses. Life insurance may not be worth it if you have no one who relies on your income, or if you have other means of providing for your loved ones after your death.

Read on to find out more about the benefits and drawbacks of life insurance, as well as who should get it and who probably doesn’t need it.

What are Some Benefits of Getting Life Insurance?

Life insurance is not “insurance” in the usual sense, as it doesn’t really insure your life or protect you from dying. Rather, it is a way of providing for loved ones in the case of your untimely death.

Most people who pay into their life insurance every month never see any benefit from it, so for some, it may feel like throwing away money. That said, those with dependents, friends, or relatives that rely on their income can expect several benefits from purchasing a life insurance policy.

Let’s take a closer look at some of those benefits.

Loved Ones Receive the Death Benefit

The death benefit is a fancy term for the lump sum of money that the beneficiary of your life insurance plan receives at your death. The death benefit is what assures the financial security of your loved ones if you are no longer around to provide for them.

The death benefit is often quite a large sum of money, enough to replace at least a year of your wages and usually much more. This money allows your dependents, such as children and a stay at home spouse, to keep on living without experiencing an immediate financial hardship following your death.

You Can Provide for Dependents

This is the reason most people buy life insurance. Perhaps you’re only in your 20s or 30s, but you have a young child, or several, and you’re worried about what would happen to them if you were to die. Life insurance basically ensures that your children are provided for in the event of your untimely death.

You Can Provide for Friends or Relatives

Perhaps you don’t have children, but you do have friends or family members who depend on your income. For example, you may provide for a spouse, a disabled relative, elderly parents, or a friend who has fallen on hard times.

Anyone you name as beneficiary on your plan will receive the death benefit after your death, whether they are your blood relatives or not.

You Can Obtain Peace of Mind

All of these benefits of life insurance can provide a fourth benefit: peace of mind.

When you buy life insurance, you’re not so much buying a policy that will provide for yourself in some future need. You’re buying peace--the knowledge that your loved ones will be taken care of if something happens to you.

Peace of mind in the main benefit you receive yourself when you purchase life insurance.

Who Should Buy Life Insurance?

So as you can see above, there are some definite benefits to buying a life insurance policy. That said, not everyone will necessarily receive those benefits.

Whether or not life insurance is worth the money for you will depend on several factors, including where you are in your life and whether you have people who depend on your income.

So who should buy life insurance? What types of people will benefit most from the peace of mind it brings, as well as the other benefits?

Keep reading to find out. 

Parents May Want to Purchase Life Insurance

In most cases, parents with young children will want to purchase life insurance to make sure their children are provided for.

If you’re a parent, the money your children would receive at your death could be used for everyday expenses, higher education, childcare, or activities such as youth sports or summer camps.

It’s important that both parents are insured, even if they are married and living in the same house. Life insurance will only provide coverage for the person insured. So if you have life insurance and your spouse dies, your children will not receive any death benefit. Parents also have the option to set up a trust in conjunction with their life insurance policy. For more on life insurance and trusts, read this other post.

Spouses May Also Benefit from Life Insurance

If you are married but don’t have children, there may still be benefits to having a life insurance policy with your spouse as the beneficiary. This is especially true if your spouse doesn’t work or has a much lower income than you do, is disabled, or would otherwise experience financial hardship if you were to die.

Alternatively, if you are single but have friends or loved ones you want to provide for in case of your death, a life insurance policy might be a good choice.

The Elderly May Purchase Life Insurance for End of Life Expenses

If you are a senior citizen with no investments, assets, or savings to provide for your end of life expenses, you may choose to purchase a life insurance plan. Options for seniors are limited, but there are plans; such as, the Colonial Penn 995 plan, which focus on smaller death benefits for an older clientele. The payout upon your death would be enough to cover funeral costs, burial or cremation, and final debts so that your children and loved ones have one less thing to worry about when you die.

Keep in mind, however, that life insurance policies tend to go up in price the older you get, and existing medical conditions or overall bad health may also increase the cost.

Special Considerations When Choosing Life Insurance

There may be some situations when buying a life insurance policy would be worth the money even when you wouldn’t expect it to be. Let’s take a look at some of these special considerations.

Do You Have a Mortgage?

Even if you are not the sole provider in your household, your death may leave family or housemates with a monthly mortgage payment. They may, of course, choose to sell the house, but this can take time and may not be the most financially efficient move.

If those you leave behind can’t afford to pay the mortgage until the house sells, or don’t want to sell the house in the first place, a small life insurance plan may allow them the necessary funds to make mortgage payments for the time being. A larger policy may even allow them to pay off the mortgage.

Are You a Stay at Home Parent?

If you’re a stay at home parent, you may think that you don’t need life insurance because you’re not contributing financially to the household. But this isn’t entirely true.

In the event of your death, your spouse would likely need to pay for childcare, which would be a major additional expense. Your spouse may also run into additional expenses such as home cleaning services. Plus, if you had a home based business, any income you brought in would be lost after you die.

Even if you don’t work, it’s still a good idea to have life insurance for yourself if you have children.  

Do You Plan to Start a Family?

Even if you’re not yet married or don’t have children, it’s a good idea to think about your short term and long term plans. Are you engaged or planning to become engaged? Do you hope to start a family within the next couple of years? Do you expect to start supporting a disabled loved one in the near future?

If you answered yes to any of those questions, it may be a good idea to consider getting life insurance. 

What are the Best Life Insurance Options?

To make sure that you get the best deal on a life insurance policy, it’s recommended that you use a price comparison tool. Click on the button below to compare prices from hundreds of different insurers.

As you might imagine, there are different types of life insurance that you can choose from. Each company will offer slightly different policies from all the rest, and of course, prices will vary from company to company. But almost all life insurance policies can be grouped into one of two broad categories: term life insurance and permanent life insurance.

In most cases, a term life insurance plan will be the best option, but there are times when you may want to go with a permanent plan instead.

Let’s take a closer look at these two types of life insurance plans, the differences between them, and some scenarios when each would be appropriate.

Term Life Insurance

A term life insurance plan lasts for a set period of time, or a “term”--usually 10, 20, or 30 years. You pay the yearly premiums, usually broken down into smaller monthly installments, for as long as the term lasts. If you die during that time, your beneficiary will receive the death benefit. If not, the term simply ends and, if you feel the need, you can apply for a new term.

Term life insurance plans usually make the most sense for parents or guardians because they are relatively inexpensive and they don’t last forever. If you only need life insurance until your children are grown and supporting themselves, you probably won’t want to be paying for life insurance once your kids are on your own.

Another benefit of term life insurance is that plans are often flexible. While some companies require you to commit to your policy until it expires, others will allow you to cancel anytime if the need arises. Sometimes you can even adjust your amount of coverage: pay a higher premium for higher coverage, or a lower premium for lower coverage.

This flexibility, if available, can give you added peace of mind, especially in cases of changing financial circumstances while you’re still alive. 

Permanent Life Insurance

There are different types of permanent life insurance plans, but what they all have in common is that they last much longer than term life insurance plans and allow you to build up a cash value over time.

The most common type of permanent insurance, known as whole life, lasts for the duration of your life time, whether that be 5 years or 55 years. Whole life insurance plans are not limited to a term, and as a result, they are often much more expensive than term policies.

The main draw of permanent life insurance plans is the cash value they build up over time--in other words, these policies work a bit like making an investment. You pay into them throughout your life, and after a period of time, you can begin drawing on the funds you’ve built up. Some people prefer this option over simply watching their money disappear every month.

That said, it’s important to remember that these policies are permanent. They last a long time, if not your entire life; they are inflexible; and they are expensive. And depending on the policy, they may not build up a cash value quickly enough to make it worth the yearly premiums.

Are There Times When Life Insurance Isn’t Worth It?

Up to this point, we’ve been talking about all the different scenarios when life insurance would be a good idea, what types of people would most benefit from buying life insurance, etc. But are there any times when life insurance isn’t worth the money?

Life insurance certainly isn’t for everyone. Depending on where they’re at in life, some people simply don’t need it.

What about you? Do you fall into the group who would be better off without life insurance? Let’s take a closer look at some people and scenarios for whom life insurance may not be worth it.

You May Not Need Life Insurance if You Don’t Have Dependents

According to a Stanford study, your income and your likelihood of having dependents are the two biggest factors in people’s deciding whether or not to get life insurance. If the primary reason to buy life insurance is to protect your family from financial hardship after your death, then you probably don’t need it if you don’t have kids. If you do have kids, but they are already grown and supporting themselves, there’s no need to purchase life insurance on the basis of providing for them because, simply put, they are already providing for themselves.

In most cases, you only need life insurance if you are the primary financial provider for someone else. If you don’t have any dependents, such as young children or disabled family members, you probably don’t need life insurance.

That said, even if you don’t have any dependents now, but you’re planning to start a family soon, you may want to at least start thinking about life insurance and exploring your options.

You May Not Need Life Insurance if You’re Single

Some people may choose to buy life insurance to provide for their spouse. But if you’re not married and are not planning to get married, you probably don’t need to buy life insurance.

Again, the point of having life insurance is to protect your loved ones from financial hardship when you die. If there is no one in your life, spouse or otherwise, who would benefit from your life insurance, then there is no reason to spend the money on it.

Of course, life circumstances can change unexpectedly, and if you do find yourself providing for a spouse or loved ones, exploring your life insurance options isn’t a bad idea.

You Don’t Need Life Insurance for Your Children

Some people who don’t understand how life insurance works may feel the need to insure their children. Problem is, life insurance doesn’t do anything to protect children from dying, and most kids aren’t contributing financially to the household, so receiving a death benefit after losing a child will undoubtedly be an insignificant and unnecessary consolation.

There is rarely any reason to purchase life insurance for a child, and almost no reason to do so if that child is your dependent. You will gain very little, if anything, by having life insurance for your child. 

Not All of the Elderly Need Life Insurance

While a life insurance policy may help some senior citizens pay for their funeral costs and final expenses, not all of the elderly will benefit from buying life insurance. Some seniors may instead choose to save the money they would have spent on life insurance; these savings can then be used for final expenses.

Also, if you’re a senior and you have built up assets or investments throughout your life, you may have adequate money in those things to pay for your final expenses.

Again, if your death isn’t going to financially impact your loved ones, and you have other ways to pay for final expenses, then buying life insurance may be completely unnecessary. 

Pros and Cons of Life Insurance

As you’ve probably gathered so far, life insurance has plenty of benefits for certain people, but it has its drawbacks as well. Let’s take a closer look at these pros and cons and how they stack up against each other.

Pros
  • Life Insurance Protects Against Financial Need
  • Life Insurance May Cover Final Expenses
  • Life Insurance Gives You Peace of Mind
Cons
  • Life Insurance Can be Expensive

Pro: Life Insurance Protects Against Financial Need

We’ve mentioned this several times: life insurance provides financial security in the event of an untimely death. Basically, it’s a way of making sure your spouse, children, or any other dependents are taken care of if you can no longer provide for them.

If you have a permanent life insurance plan, you may be able to draw on the financial resources you’ve built up while you’re still alive. This can be useful if you experience unexpected or sudden financial problems. Keep in mind, though, that permanent policies are much more expensive than term policies.

Pro: Life Insurance May Cover Final Expenses

For those who have no dependents, such as the elderly, life insurance can be a way to cover funeral costs and pay off final debts without putting a financial strain on family members. Being able to cover your own final expenses may be especially important to senior citizens whose  children and other relatives are not particularly well-off.

Of course, there are other ways besides life insurance to prepare for your final expenses, such as saving and investing. But, for those on a limited income, life insurance may allow you to provide a relatively large payout at your death for a relatively small monthly payment.

Pro: Life Insurance Gives You Peace of Mind

Peace of mind is the primary benefit you receive, personally, from purchasing life insurance. Having a life insurance policy will allow you to breathe easier knowing that your loved ones are provided for if you can no longer take care of them.

Con: Life Insurance Can be Expensive

Depending on your age, health, and the type of policy you purchase, some life insurance plans can actually be quite affordable when paid monthly. That said, other plans can be quite pricey.

As mentioned, permanent life insurance is much more expensive than term life insurance. If you are making payments on permanent life insurance, but experience a financial hardship, you may find it difficult to continue paying the premiums.

Even then, many policies are binding and may charge a fee if you have to cancel before the policy expires. Some plans are less flexible than others and won’t allow you to adjust your payments despite changes in income.

It’s always a good idea to make sure you know exactly what you’re getting before you agree to any binding contracts.

Con: Life Insurance May be Seen as a Waste of Money

Especially for those with term life insurance, it’s easy to view your insurance payments as throwing away money every month. After all, if you’re still alive at the end of your term, you will have paid probably thousands of dollars that you will never get back.

Before signing up for term life insurance, it’s important to understand that you’re basically buying peace of mind. You’re insuring your family should anything happen to you. And yes, it will cost you quite a bit of money that you’ll never see again.

How Much Does Life Insurance Cost?

The cost of life insurance varies widely based on factors such as age, gender, health, whether or not you smoke, and what type of policy you have. The following information, as compiled by Valuepenguin, should give you some idea of what you can expect to pay based on these different factors.

Smokers Pay More Than Non-Smokers

Because of the many ways smoking negatively affects health, those who smoke can expect to pay much higher premiums than non-smokers. The basic reasoning is that smokers are considered more likely than non-smokers to die during the course of their term.

Of course, age also plays a big role. The older you are, the more likely you are to die during your term, and the higher your premium will be. 

Take a look at this comparison chart for smokers and non-smokers at different ages. The dollar values denote monthly payments.

Age Non-smoker Smoker
25 $31 $86
30 $33 $92
35 $38 $117
40 $50 $179
45 $78 $277
50 $118 $426
55 $190 $663
60 $318 $1,007
65 $593 $1,528

Gender Can Also Play a Role

In general, life insurance policies cost about 23% more for men than for women. This is because statistically, women have a longer life expectancy than men. So a man and a woman who are the same age can probably expect to pay different premiums simply based on their gender.

The following chart shows typical premiums for men and women at specific ages for specific policy face values.

Age Policy face value Female Male
30 $250k $18 $21
$500k $28 $33
$1m $49 $58
40 $250k $25 $30
$500k $41 $50
$1m $76 $93
50 $250k $52 $67
$500k $92 $118
$1m $173 $226

Other Factors

Gender, age, and smoking status are some of the biggest factors that influence the cost of life insurance policies, but there are other factors as well. Some of the factors that may lead to cheaper or more expensive policies include:

  • Length of term. The longer your term is, the higher your premiums will be. This is because statistically, the chances that you’ll die during a 30 year term are higher than during a 10 year term. 
  • Policy face value. The more coverage you have, or the face value of the policy, the higher your premiums will be. This is probably an obvious one-- if you want a death benefit of $1 million, you’re going to pay a lot more than you would for a death benefit of, say, $100,000.
  • Term vs. permanent. Of course, permanent policies cost more than term policies. How much more? Possibly up to 10 times.

The best way to determine how much you’ll have to pay for life insurance is to shop around and get different quotes personalized for you.

Final Thoughts

Is life insurance worth it? Ultimately, you’re the only one who can make that call for yourself. Hopefully, after reading this article, you have a better understanding of how life insurance works and the potential benefits and drawbacks it poses, as well as whether it’s a good choice for you to make at this point in your life.

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