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Is Life Insurance Worth It? Factors to Consider When Making a Decision

You might not think of life insurance when you're young, but the earlier you purchase a policy, the more cost-effective it is. Deciding on the type of life insurance is a major decision, and you'll want to weigh all the policy options against your needs and short and long-term goals. This article explores the two main life insurance types, what they entail, and what you can expect to pay.

Key takeaways:

Different types of life insurance

Life insurance is available as either a term or permanent policy. A term life insurance policy can be purchased for a specified number of years, and coverage ends at the end of the term, hence its name. A permanent policy remains in effect throughout the insured's life, provided premiums are kept current.

Both term and permanent life have options designed to meet the insured's needs.

Term life insurance

According to the Insurance Information Institute, the most common type of insurance is term life, representing nearly one half of all policies.

Term life insurance is generally available for 10, 20, and 30 years and is renewable for an additional term. Some insurance companies allow the insured to convert their term policy into a whole-life policy. Term life is less expensive than permanent life, but it only provides a death benefit if the insured dies while the policy is in effect.

Several types of term life insurance policies are available, so you'll want to review each to determine which best meets your needs.

  • Fixed term. With a fixed-term policy, your premiums will remain the same. It's the most basic term policy offered by most companies.
  • Increasing term. The death benefit will increase with the premium, but the final payout will be more than a fixed-term payout.
  • Decreasing term. This policy is the opposite of an increasing term policy. Your death benefit and premium will decrease.

Your employer may offer a group term life insurance plan. The first $50,000 of the plan coverage is tax-free to the employee.

Permanent life insurance

Permanent life insurance policies are designed to remain in effect until you pass away as long as premiums are kept current. Although more expensive than a term life policy, permanent policies provide more benefits. The two primary types of permanent insurance.

  • Whole life insurance. Although more costly, whole life insurance coverage is provided throughout the insured's life and pays a tax-free death benefit. The cash value may increase as interest is earned.
  • Universal life. If you want to avoid being locked into a premium amount with a whole life policy, a universal life policy allows you to change your premium amount within limits. Premiums are often lower than whole life policies.

Other life insurance

For those not qualifying for traditional life insurance policies, other types are available that might better fit your needs, especially if you are older, on a tight budget, or have a health condition that precludes you from qualifying.

  • Final expense. This permanent policy is designed to cover final expenses and burial costs. It is one of the few options available after a certain age and is the least expensive.
  • No-medical exam. This has a higher premium because risk assessment is made using previous medical records, not a new examination. However, it is better for those with health risks.

The cost of life insurance

Is life insurance a good idea, given the cost? There are many factors to consider when deciding on whether to purchase life insurance and what type of policy you'll need.

Provider overview
On Everyday Life's Website

Below is a table for term life insurance based on different term lengths and coverage amounts:

Age/Policy/CoverageMale/Female premiums per month
30 years old
10 year term policy
$500,000 coverage
$19/$15
40 years old
10 year term policy
$500,000 coverage
$27/$23
50 years old
10 year term policy
$500,000 coverage
$61/$49
60 years old
10 year term policy
$500,000 coverage
$161/$110
70 years old
10 year term policy
$500,000 coverage
$483/$316
30 years old
20 year term policy
$500,000 coverage
$27/$24
40 years old
20 year term policy
$500,000 coverage
$43/$31
50 years old
20 year term policy
$500,000 coverage
$101/$78
60 years old
20 year term policy
$500,000 coverage
$298/$218
35 years old
whole policy through 65
$500,000 coverage
$1,640/$1,480
45 years old
whole policy through 65
$500,000 coverage
$2,771/$2,543
55 years old
whole policy through 65
$500,000 coverage
$6,353/$5,905
35 years old
whole policy through 99
$500,000 coverage
$712/$641
45 years old
whole policy through 99
$500,000 coverage
$1,113/$1,007
55 years old
whole policy through 99
$500,000 coverage
$1,837/$1,655

*These figures are for a healthy, non-tobacco user based out of California.

How much life insurance do I need?

The average coverage amount for term policies in 2024 is $110,000 according to the Insurance Information Institute. But is life insurance worth it for your circumstances, and if so, how much is best? The amount you need is contingent upon several factors. To determine how much you should get when activating a new policy, consider the following:

  1. Your anticipated funeral costs. As of 2024, the average price for essential funeral services and burials is between $8,000 and $12,000, depending on where you live.
  2. Any financial dependents you have. If you have young children, they might only be dependent for a set term, but if you have a disabled child or older parent, they might be reliant on you permanently.
  3. Debt. If you have specific obligations that would be a financial burden to your loved ones, term or permanent policies can cover the length of those debts. But is life insurance a good idea for people without debt? If you don't have any current debt or enough savings to cover any existing debts, you won't need to include this in your calculation of how much life insurance to get.
  4. Education. The Education Data Initiative states that the average cost of college across the US is $36,436 per student. If you have children in college or who might go to college, you can calculate this average for each.

An example using the data above would be as follows:

Funeral$10,000
Cost of living for 2 children and 1 spouse$50,000
Debt (mortgage, car loan, credit card)$240,000
Education for 2 children$72,000
Total$372,000

With the table above, it would be ideal for someone in this situation to take out coverage of at least $372,000.

However, given that many of these costs are temporary, that same individual might consider a term life insurance policy for the $372,000, but if they outlive that term and no longer have to cover debt, college, or the cost of living for underage children, they could convert to or take out a new permanent policy with less coverage.

What are the pros and cons of life insurance?

Each type of policy has its benefits and drawbacks. Comparing both can help you make an informed decision.

The best age to get life insurance

There is no standard age to purchase a life insurance policy. Everyone has different needs, and your age, health, and finances are considerations.

The younger you are, the less expensive a term or permanent policy will be. After age 60, purchasing a policy may be more difficult and costly, but not impossible.

Prices vary depending on the insurance company and the policy you choose. The amount of insurance you request will determine the policy cost. A $10,000 policy is much less expensive than a $100,000 policy, whether term or permanent. Term life will always be less costly than permanent.

Is it worth buying life insurance?

Everyone has different circumstances and needs. If you have life insurance on your mortgage and have enough savings to pay for final expenses, you may not need life insurance. Those with employer-provided life insurance may not need additional coverage. If you're interested in long-term savings with borrowing options, a permanent policy may be suitable for your needs.

Before deciding on a life insurance policy, explore your options and speak with insurance experts who can help you meet your needs.

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