Is Life Insurance Worth It? (2024)

When you take out a life insurance policy, a contract is made between you and the life insurance company. You pay premiums in exchange for a lump-sum death benefit that’s paid to your beneficiary (or beneficiaries) if you die.

This death benefit can be used for any purpose by the beneficiary. Often, the funds help cover major expenses that your loved ones might struggle to afford in your absence, such as funeral costs, mortgage payments, tuition and other bills.

Related: How Does Life Insurance Work?

If you have loved ones who depend on you financially—or you have debts that would be burdensome for your family if you died—life insurance is likely a smart move. It’s valuable financial protection and is often part of a solid overall financial plan. Many people buy life insurance so that the payout will:

• Provide income replacement when your family no longer has your paycheck coming in.
• Pay down debts left behind.
• Financially support a child with special needs.
• Pay for a funeral.
• Provide money to pay estate taxes on large taxable estates.
• Leave a legacy.

If you’re considering purchasing a life insurance policy, there are some factors to consider:

	Your financial situation What does your family’s financial future look like if you die? Life insurance can give you peace of mind knowing your loved ones will be financially supported once you’re gone. That’s one of the most compelling reasons to buy life insurance.
	Your budget It’s vital that you can afford your life insurance premiums so that you aren’t forced to let the policy lapse later. Consider how life insurance costs fit within your budget.
	Your age Life insurance premiums increase with the buyer’s age. The sooner you purchase a policy, the lower your premiums will be.
	Your policy options There are several different types of life insurance policies, all with different benefits and drawbacks. There are policies that require medical exams and other options that don’t. There are policies that accumulate cash value, and others that don’t. There may also be life insurance riders to consider, depending on the policy.

To decide whether buying life insurance is worth it, it helps to weigh the pros and cons. In many cases, the benefits of having life insurance far outweigh the drawbacks. But life insurance may only be right for some people. Here’s what to consider.

Pros of Life Insurance

• Financial protection for loved ones. This is the main reason to buy life insurance. It provides peace of mind that your family won’t be left financially struggling if you die.
• Variety of options. When it comes to choosing a life insurance policy, you have many choices. Finding a policy that fits your family’s needs and budget is usually possible.
• Cash value. If you buy a permanent life insurance policy such as whole life insurance, it will have a cash value component that can grow over time. You can choose to take advantage of these funds while you’re alive.
• Tax benefits. Any cash value growth is tax-deferred. Plus, your beneficiaries don’t need to pay taxes on the death benefit. (An exception is if the death benefit goes into a taxable estate, which can be avoided with proper planning.)

Cons of Life Insurance

• Cost to budget for. Even if you can benefit greatly from life insurance, it is an additional cost that you need to budget for.
• Cost to buy increases with age. The longer you wait to buy a policy, the higher the premiums will likely be. If you’re a bit older and just now considering life insurance, prepare to pay more than if you had taken out a policy years ago.
• Medical history can increase life insurance quotes. Certain risk factors such as obesity, high blood pressure and smoking will typically increase life insurance quotes because your life expectancy is shorter.

A whole life insurance policy costs an average of $4,728 per year, while a 30-year term life insurance policy averages $360 per year. That’s for a 30-year-old male with $500,000 in coverage. What you pay for life insurance will depend on your particular circ*mstances.

Here are more examples of life insurance quotes based on a 30-year-old male buying $500,000 in coverage.

Cost of Life Insurance Examples

Factors That Affect the Cost of Life Insurance

The average cost of life insurance will vary dramatically depending on several factors:

• Health
• Age
• Gender
• Family medical history
• Death benefit amount
• Type of policy (i.e., term or permanent)
• Risky hobbies
• Criminal record
• Driving record

There are two main types of life insurance, each with beneficial features in certain situations. When deciding if life insurance is worth it, you’ll want to consider what type of insurance makes the most sense for you.

Term Life Insurance

The first is term life insurance. As the name suggests, it is meant to cover you for a level term period, during which your premium and death benefit will not change. Terms are usually 5,10, 15, 25 or 30 years.

You pay premiums while the policy is active, and if you die during that time, your beneficiary will receive a death benefit. When the term ends, you may be able to renew the policy every year after that, but you’ll pay higher rates at each renewal. If you don’t renew, coverage ends and there is no payout.

Term life insurance may be a good option if losing an income would leave your family financially vulnerable. In this case, term life insurance acts as a safety net.

For example, say you’re in your 30s, married and have young children. Maybe you have a mortgage as well. You might buy term life insurance to ensure your spouse isn’t financially burdened if you die prematurely. Once your children are older, and your debts are paid, it might not be as crucial for you to have life insurance coverage for that purpose.

Term life insurance is typically less expensive than other types of life insurance.

Permanent Life Insurance

Permanent life insurance policies generally do not expire—as long as you keep up with premium payments. Permanent life insurance policies also typically accumulate cash value on a tax-deferred basis. Cash value money can be withdrawn or borrowed against. (Taking a withdrawal or having a loan balance will mean a lower death benefit for your beneficiaries if you pass away.)

There are several types of permanent life insurance, including:

• Whole life: Whole life insurance is designed for people who want permanent coverage (usually through age 120) with cash value but low risk. Whole life guarantees a minimum rate of cash value return, fixed premiums and a death benefit.
• Universal life: Universal life insurance offers adjustable premiums (within specified parameters) and an adjustable death benefit. Universal policies also include a cash value component.
• Indexed universal life: With an indexed universal life insurance policy, you have flexible premiums and death benefits, and cash value is tied to a stock market index. These policies have participation rates and usually a cap on gains.
• Variable universal life: A VUL policy allows you to vary premium payments and death benefits, with cash value tied to your chosen sub-accounts. You will need to actively manage this type of life insurance.

The exact rules surrounding permanent life insurance and its cash value component depend on the type of policy and individual insurer. However, permanent life insurance is more expensive than term life.