Is Life Insurance Worth It?

Learn how life insurance works, how much it costs and whether you should get it.

Written by Erin Gobler / May 12, 2022

Quick Bites

  • Life insurance is designed to provide financial support for your beneficiaries when you die.
  • There are two types of life insurance—term and permanent—which have some basic functions in common, but differ in terms of price and features.
  • The cost of life insurance depends on many factors including your age, gender, health and the type of life insurance you choose.
  • Life insurance is a good purchase for most people, but may not be worth it for everyone.

If you’ve scoured the web for personal finance advice or have met with a financial planner, there’s a good chance you’ve gotten recommendations to sign up for life insurance. If you’re young, healthy and childless, you may think that you don’t need life insurance, that it’s not worth the cost and your money is better spent elsewhere. While that may be the case, there are some things to consider before ruling it out.

Only about 54% of people in the United States had life insurance in 2020, according to LIMRA, a research, consulting, and professional development not-for-profit trade association. While some may choose to not purchase life insurance, about 41 million people say they need the coverage but don’t have it.[1]

The reality is that life insurance is a safety net that you can’t predict ahead of time when you’ll need it. So, pay close attention to figure out whether life insurance is worth it for you.

Inside this article

  1. How life insurance works
  2. Types of life insurance
  3. How much life insurance costs
  4. Pros and cons of life insurance
  5. When life insurance is worth it
  6. When life insurance isn’t worth

How life insurance works

With life insurance, you promise to pay monthly or annual premiums to the insurance company. In return, the insurer agrees to pay a death benefit to your loved ones if you die during the policy term. That death benefit will provide financial support to your beneficiaries by helping to replace your income, pay off debt, cover your end-of-life expenses and more.

“Having the safety net of life insurance can ensure that your family can stay in their home and pay for the things that you planned for,” says Mark Williams, chief executive officer at Brokers International, an insurance marketing organization.

Types of life insurance

There are two primary types of life insurance. While they have some important similarities, they also have some key differences. That’s where you need to pay attention and determine what your needs are and which policies will best fit them.

Term life insurance

Term life insurance is the simplest type of life insurance. When you sign up for this type of policy, you choose a death benefit amount and a policy term, which usually ranges from 10 to 30 years. As long as you continue to pay the policy premiums, if you die during the policy term, the insurance company will pay the specified death benefit to your beneficiaries. Once the term ends, the policy is over and you’ll have to purchase a new policy to continue to have coverage.

“Once the term of the policy expires, you may be able to renew the coverage in increments of one year, known as guaranteed renewability,” Williams says. “Many contracts allow you to renew for another extended period of time, but the renewal will be at a higher rate.”

Term life insurance is ideal for someone who wants an affordable way to ensure financial support for their loved ones. These policies are popular with young and middle-aged individuals, especially those with children to support, debt to pay off or other dependents who rely on their income to get by.

Permanent life insurance

Permanent life insurance, rather than lasting for a set policy term, lasts your entire life as long as you pay the premiums. Just like a term life policy, permanent life insurance offers a death benefit to your loved ones when you die. However, it also has a cash value component.

That means that part of the premiums you pay goes into what’s essentially an investment account, and those funds grow over time. Later on, you can borrow against that cash value, use the built-up cash value to pay your death benefit premiums or withdraw the funds entirely.

Permanent life insurance might be a good idea if you want death benefit protection for your entire life, especially if you’re able to lock in a low rate when you’re young. Additionally, the cash value component of life insurance is tax-deferred, meaning you don’t pay taxes on the investment growth while it’s in the account.

While this isn’t necessarily a substitute for a traditional investment account, it can be a great option for high earners who have maxed out their other tax-advantaged investment accounts and want a way to further reduce their tax burden.

“As you enter different stages of life, your life insurance needs may change,” Williams says. “Many term life insurance policies are convertible to a permanent policy. The options will depend on your policy and insurer. Term life conversion allows you to switch to a permanent policy without re-applying or taking a life insurance medical exam.”

Term vs. Whole Life Insurance

Term vs. Whole Life Insurance

Which type of life insurance is best for you? Find out what the differences are and how much each might cost before you decide.

Find out more

How much life insurance costs

One of the most important questions to consider when deciding whether life insurance is worth it is how much it actually costs. And the short but frustrating answer is: It depends. It’s difficult to give a straight answer about the cost simply because it varies so much, both from one person to another and from one type of life insurance to another.

One of the biggest factors that will determine how much you’ll pay for life insurance is whether you choose term or permanent life insurance. Because of its limited scope and timeframe, term life insurance is considerably cheaper.

Someone who is young and healthy might pay close to $20 per month for term life insurance, while an older individual might pay upwards of $150. The chart below shows the average monthly cost for both women and men with ages ranging from 25 to 55 for a 20-year term policy with a death benefit of $500,000.[2]

AgeFemaleMale
25$21.26$26.98
35$25.60$30.42
45$48.09$60.99
55$109.39$152.08

Permanent life insurance can be far more expensive, both because of the cash value component and the fact that it provides coverage for your entire life. The chart below shows the average cost for women and men with ages ranging from 25 to 55 for a whole life policy with a $500,000 death benefit.[2]

AgeFemaleMale
25$346$393
35$481$571
45$716$866
55$1,173$1,380

As you can see from the data above, your age and gender are both factors that affect your life insurance rate. Women tend to live longer, meaning they also pay less for life insurance. As for age, life insurance companies reasonably conclude that younger people are less likely to die in the near future, meaning they present less risk to the insurance company.

But those aren’t the only factors that affect your life insurance rates. Your health history is also an important consideration. In fact, many insurers require a medical exam when you sign up for health insurance. And having pre-existing conditions can increase your insurance rates (or even result in an insurance company refusing to provide you with a policy).

Other lifestyle factors also play a role. People with high-risk jobs, dangerous hobbies or who smoke or use tobacco are likely to pay more for life insurance than their peers.[3]

“The only way to know what you will pay is to get life insurance quotes from a few companies,” Williams says. “Quotes are free. An experienced life insurance agent will know what companies tend to give the best prices based on your age, health, and desired coverage amount. Expect to be asked about your age, health, tobacco use, your family health history, driving record and any dangerous occupations or hobbies.”

Pros and cons of life insurance

To help you decide whether life insurance is worth it for you, we’ll break down some of the pros and cons of these policies.

Pros of life insurance

  • Life insurance provides financial support to your loved ones when you die, which can also provide peace of mind for you during your lifetime.

  • Life insurance is paid to your beneficiaries without tax implications, which isn’t necessarily the case for other types of assets.

  • Even if you don’t have a family to support, a small term life insurance policy can pay for your end-of-life expenses such as a funeral and burial.

  • Depending on your age and the type of life insurance you choose, policies can be relatively affordable, costing less than $30 per month for young individuals.

  • The cash value component of permanent life insurance can serve as an emergency fund or a way to defer taxes on your investment growth.

Cons of life insurance

  • Life insurance is yet another expense in your monthly budget.

  • For older individuals or those with pre-existing conditions, life insurance may be cost-prohibitive, or even impossible to qualify for.

  • Permanent life insurance is heavily marketed by insurance salespeople, but is very expensive and results in relatively low investment returns.

  • Term life policies only provide coverage for a certain number of years.

When life insurance is worth it

Are you still wondering whether life insurance is right for you? The answer for most people is that yes, it’s worth it (and possibly even necessary).

First, life insurance is an important purchase if you have any loved ones who rely on your income. Do you have children to support? Do you have a partner who relies on your income to help pay the bills? In that case, it’s worth purchasing life insurance to replace your income. Not only can the death benefit help to replace your income for years to come, but it can also help pay off any family debts like your mortgage and send your kids to college.

The simplest way to answer the question of whether life insurance is worth it is to ask yourself whether anyone would have a financial burden placed on them by your untimely death. If the answer is yes, then life insurance is right for you.

And remember, life insurance isn’t just for those with dependents or spouses to provide for. Even if you’re young and single, the chances are that someone would still have to pay for end-of-life expenses such as a funeral and burial, and even the simplest ones can be expensive. In that case, it’s probably worth buying a small term life policy to cover those expenses and eliminate that cost burden for your loved ones (unless you want to stick it to them, in which case, by all means).

What is a Life Insurance Beneficiary?

What is a Life Insurance Beneficiary?

Choosing the person or people who’ll collect on your policy if you die may seem like a no-brainer, but there are some considerations to keep in mind.

Find out more

When life insurance isn’t worth it

Life insurance is probably worth it for most people, but there are also a couple of situations where it’s not necessary at all. First, you can probably skip life insurance if you’re single, have no dependents, and have enough money in your various accounts to cover your end-of-life expenses.

Many people also no longer need life insurance when they reach retirement. At that point, you aren’t working to bring in income. Instead, your income comes from your various investment and retirement accounts, which should continue to provide financial support to your spouse and any other dependents. And by retirement, many people have already paid off their mortgages, meaning there aren’t any major expenses for your family to worry about.

Your individual situation will always be unique, so consider all the factors for why life insurance may or may not make sense for you and be sure to seek advice from an insurance agent if you need help.

Article Sources
  1. Insurance Information Institute. “Facts + Statistics: Life insurance.” https://www.iii.org/fact-statistic/facts-statistics-life-insurance.
  2. Policygenius. “Average life insurance rates by age, gender, policy type, and coverage amount.” https://www.policygenius.com/life-insurance/life-insurance-rates/.
  3. FidelityLife. “8 factors that affect life insurance premiums.” https://fidelitylife.com/learn-and-plan/insights/factors-that-affect-life-insurance-premiums/.

About the Author

Erin Gobler

Erin Gobler

Erin is a personal finance expert and journalist who has been writing online for nearly a decade. Erin’s work has appeared in major financial publications, including Fox Business, Time, Credit Karma, and more.

Full bio

Related Content