Is Life Insurance Worth It?

Life insurance is worth it if someone would experience financial hardship from your death. The simple test: would anyone struggle to pay bills, lose their home, or be unable to afford basic needs if you died tomorrow? If yes, you need coverage.

Life insurance can provide substantial financial protection for a relatively low cost. A healthy 30-year-old woman pays $31 per month for $500,000 in 20-year term coverage, or $7,440 over the full term. If she dies while the policy is active, her beneficiaries receive a $500,000 death benefit, generally income tax-free.

• Income replacement. Life insurance can replace lost earnings when a family depends on that income for housing, child care, everyday expenses and long-term savings goals.
• Debt protection. A death benefit can help pay off a mortgage, car loan or other debt that could otherwise become a financial burden for surviving family members or co-signers.
• Education funding. Coverage can help keep a child's college plans on track if a parent dies before enough has been saved for future education expenses.
• Business continuity. Life insurance can fund buy-sell agreements or provide money to help a business manage the financial impact of an owner's or key employee's death.

Term life insurance fits most families because income replacement, mortgages and education costs have a defined endpoint. Matching your policy term to those obligations provides coverage during the years when the financial risk is highest.

The value of life insurance shifts with age. Your 30s are the best time to buy. Monthly rates are low, financial obligations are high and a 20- to 30-year term covers your mortgage and child-rearing years in one policy. Here's what a $500,000 policy costs by age and whether it makes sense at each life stage:

Life insurance costs less than most people think, and the protection far exceeds what you pay. A healthy 30-year-old woman pays $31 monthly for a 20-year, $500,000 policy. Over 20 years, that's $7,440 in premiums. Your family gets $500,000 if you die. That's 67 times what you paid. Unlike a taxable savings account or investment portfolio, that $500,000 passes to your beneficiaries income tax-free.

The immediate protection matters most. If you die during the first year of a $31-per-month policy, your beneficiaries would receive $500,000 after you've paid as little as $372 in premiums. Building that level of protection through savings alone can take years.

Your rate is locked in when you buy. If you develop diabetes, heart disease or cancer after purchasing a level term policy, your premium doesn't increase because of the diagnosis. Waiting to buy can mean paying higher age-based rates or having fewer coverage options.

Misconceptions about cost, eligibility and who needs coverage can lead people to put off buying life insurance.

• “Life insurance is too expensive.” Term life costs less than many people expect. A healthy 30-year-old woman pays an average of $31 per month for a 20-year, $500,000 policy. Permanent policies cost more, but term coverage fits most families.
• “My employer coverage is enough.” Group life insurance only provides one to two times your salary and ends when you leave your job. A personal policy can provide more coverage and stays with you when you change employers.
• “I’m young and healthy, so I can wait.” Buying while you're young and healthy means lower premiums. Waiting increases age-based premiums and creates the risk that a future health condition could make coverage more expensive or harder to get.
• “Stay-at-home parents don’t need coverage.” Child care, household management and other unpaid work can be expensive to replace. Life insurance can help a surviving parent pay for those services.
• “Preexisting conditions make me uninsurable.” Many people with well-managed health conditions can still qualify for coverage. Simplified and guaranteed issue policies provide additional options for applicants who have difficulty qualifying through traditional underwriting.
• “Outliving a term policy means I wasted my money.” Term insurance provides financial protection during the years your family needs it. Like other insurance, its value comes from transferring financial risk, even if you never file a claim.

The right type of life insurance depends on how long you need coverage and what you can afford. Term life works best for most families because it covers the years when your death would create the largest financial gap, such as while paying a mortgage, raising children or earning income. Permanent life insurance costs more but provides lifelong coverage and builds cash value. Final expense insurance serves a narrower purpose, helping older adults cover funeral, burial and other end-of-life costs.

Term life insurance is worth it if you need affordable coverage for a set period, such as while paying a mortgage, raising children or replacing income during your working years. Policies last 10 to 40 years and don't build cash value.

A 40-year-old nonsmoking woman pays an average of $47 per month for a $500,000, 20-year term policy, while a man pays $59. Term life works best for most families because it provides substantial coverage at a much lower cost than permanent insurance.

Whole life insurance is worth considering if you need lifelong coverage, want to leave a guaranteed inheritance or need insurance for estate planning. It builds cash value at a guaranteed rate and remains in force as long as you pay your monthly premiums.

The tradeoff is cost. A $500,000 whole life policy averages $540 per month for a 40-year-old woman and $574 for a man, compared with $47 and $59 for comparable 20-year term coverage. Whole life makes the most sense when you have a permanent insurance need and can comfortably afford the higher premiums.

Universal life insurance is worth it if you need lifelong coverage but want more flexibility than whole life provides. Universal policies build cash value and allow you to adjust premiums or the death benefit within policy limits.

A $500,000 universal life policy averages $310 per month for a 40-year-old woman and $362 for a man. That's less than whole life but much more than term coverage. Universal life policies are best suited for estate planning, leaving an inheritance or other permanent insurance needs when flexibility is important.

Final expense insurance is worth considering if your primary goal is provide enough financing for funeral, burial and other end-of-life expenses. These permanent policies offer smaller death benefits than traditional life insurance, generally up to $50,000, and have simpler underwriting requirements.

Final expense policies cost an average of $31 per month for a 40-year-old woman and $35 for a man with $15,000 in coverage. Premiums are lower overall but cost more per dollar of coverage than term life insurance. At age 65, average monthly rates increase to $74 for women and $96 for men. Final expense insurance works best for older adults who no longer need substantial income replacement but lack enough savings to cover end-of-life expenses. If your savings can cover these costs, it may not be worth it to purchase a separate policy.

You can buy life insurance through an independent broker, directly from an insurer or through your employer. Brokers compare multiple carriers and policy types, while online applications work well for healthy people seeking simple term coverage. Employer plans provide basic coverage, but limits are low and coverage ends when you leave the job. Applications ask about your health, tobacco use and high-risk activities. Some insurers use prescription and driving records instead of requiring a medical exam.

Use MoneyGeek’s life insurance quote comparison tool to compare rates by age and coverage amount. Families with a mortgage and children should consider 20- or 30-year term coverage equal to 10 to 12 times their annual income.