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Is Life Insurance Worth It?

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Life insurance is designed to provide financial support for your dependents in the event of your unexpected death. But everyone’s needs are different and it can be challenging to determine if a life insurance policy is worth the investment. Understanding the types of life insurance available can help you make an informed decision.

The short answer is: It depends. Although buying a life insurance policy is a personal decision, there are a few common reasons why people do so. According to 2021 data from LIMRA, an industry research organization, these are the top three motivations for why Americans buy life insurance:

  • Ensuring funds for burial and funeral expenses
  • Replacing income lost after a wage earner’s death
  • Providing an inheritance or legacy

LIMRA finds that just over half of all Americans carry life insurance. The prime reasons people give for not doing so include the following:

  • Premiums are too expensive
  • Other financial matters take priority
  • They don’t know how much insurance they need
  • They don’t know what kind of coverage they need

If you’re thinking about buying a life insurance policy, evaluating your budget, the needs of your dependents, and your financial goals can help you determine if it’s worth it. Getting life insurance quotes from several companies can also help you decide if investing in a policy is right for you.

Before you buy a policy, it helps to understand what kinds of life insurance options are available and how they work so that you can make an informed decision. Life insurance is available in two forms: term and permanent.

What Is Term Life Insurance?

Term life insurance is also known as temporary life insurance because coverage lasts for a set period of time. This period, called the term, can last anywhere from one to 35 years or more, or to a specific age, depending on the policy. Premiums are level, meaning they won’t change during the policy term. But premiums also become more expensive with age. A healthy 30-year-old can expect to pay less for coverage than a healthy 40-year-old would on the exact same kind of policy.

Generally speaking, a term life insurance policy is cheaper than a permanent life insurance policy because it doesn’t have savings or investment components, also known as cash value. Term policy premiums are also lower because coverage is guaranteed only if the insured person dies during the specified term. Once the term expires, so does the coverage, although many insurers allow policyholders to convert a term policy into a new permanent life insurance policy.

What Is Permanent Insurance?

Permanent life insurance is so-named because coverage lasts for the insured’s entire life, not a set period of time, as long as premiums are maintained. Unlike term life, permanent life insurance policies have a cash value component, which grows on a tax-deferred basis and may be borrowed against or withdrawn from in select circumstances. It’s worth noting that doing so can reduce the death benefit amount if the borrowed funds are not repaid. Although prices vary based on insurer and policy type, permanent life insurance typically is more expensive than term life insurance.

Permanent life insurance comes in several varieties:

  • Whole life insurance. Unlike other kinds of permanent life insurance, the cash value of a whole or traditional life policy grows at a specified rate. Premiums are fixed, meaning they will not increase, and death benefits are guaranteed.

  • Universal life insurance. With universal life, both the premium and death benefit can be adjusted, allowing the policyholder some financial flexibility should their budgets or needs change over time. Unlike whole life, the cash value component of a universal life insurance grows at money market rates, meaning you could potentially earn more than you would with a whole life policy that grows at a fixed rate.

  • Variable life insurance. This form of permanent insurance allows you to choose how the savings component of the policy is invested. Investment options typically include stocks, bonds, and mutual funds. The upside is the potential for greater returns than those you may see with a whole or universal policy. The downside is that these kinds of policies often come with investment fees and other charges. And if your investment choices perform poorly, the death benefit can be adversely affected.

What Is Final Expense Insurance?

Final expense insurance, also known as funeral or burial insurance, is a type of permanent coverage with level premiums and a guaranteed death benefit. The death benefit is relatively low because it is intended to pay for end-of-life expenses, rather than to provide substantial financial support for beneficiaries.

Providing financial security – whether it’s leaving an inheritance for loved ones or replacing a source of income – is one of the top reasons people cite for buying life insurance, according to LIMRA. Before contacting insurers and getting policy quotes, you should take the time to estimate how much insurance you need. Below are a couple of the main factors to consider.

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  • Your present and future financial resources, including Social Security benefits, pensions, 401(k)s and other investments, or assets like a rental property. Group life insurance provided by your employer also counts.
  • Your beneficiaries’ future estimated expenses, ranging from regular expenses, like food and utilities, to major debts, such as a mortgage. Be sure to factor in your own funeral and other end-of-life costs, which your survivors will be responsible for.

You can also use an online calculator, like ours, to help you estimate your life insurance needs.

There are a number of factors that affect the cost of a life insurance policy, including your age and gender, your current health and medical history, and the type and amount of coverage you want. Term life insurance is cheaper than whole life insurance, in part because it lacks cash value and only lasts for a limited period of time.

How Much Does a Term Life Insurance Policy Cost?

Premiums for a term life insurance policy are based on the duration of coverage. Generally speaking, shorter terms are cheaper than longer ones. Younger people will pay less than older persons, on average, and women will have lower rates than men.

For example, a 40-year-old woman who doesn’t smoke and is in average health can expect to pay just under $183 a month for a 30-year, $1 million term life policy. A man the same age and in similar health will pay about $40 more per month for the same $1 million in coverage. Below is a breakdown of average term life insurance premiums for men and women, based on US News research.

Female Monthly Cost Comparison Chart

Male Monthly Cost Comparison Chart

How Much Does a Whole Life Insurance Policy Cost?

Permanent coverage, like whole life or universal life, is more expensive than term coverage because it is intended to last for your lifetime and it contains a savings and investment component. Overall, whole life insurance costs more than universal life insurance, based on our research.

A 40-year-old woman in average health who doesn’t smoke can expect to pay about $1,000 per month for a $1 million whole life insurance policy, for instance. A man the same age would pay about $225 more per month for the same coverage.

How Much Does a Universal Life Policy Cost?

Universal life insurance premiums are cheaper on average than for whole life coverage, according to US News data. As an example, a $1 million policy for a 40-year-old nonsmoking woman in average health costs about $579. That’s more than $400 less than the average monthly premium for a whole life policy with similar coverage. A 40-year-old man in similar health will also spend less on a $1 million universal life policy at about $674 monthly. That’s slightly more than half the cost of a whole life policy with the same coverage amount.

Female Monthly Cost Comparison Chart

Male Monthly Cost Comparison Chart

Buying life insurance isn’t in everyone’s best interest. If you have ample assets, no one depends on you for financial support, or you don’t wish to leave a legacy for a loved one or other beneficiary, then life insurance may not be as practical or appealing. Likewise, if you are of limited financial means and making regular monthly premium payments would severely strain your budget, buying life insurance may not be a good idea.

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Why You Can Trust Us: 25 Life Insurance Companies Researched

At US News & World Report, we rank the Best Hospitals, Best Colleges, and Best Cars to guide readers through some of life’s most complicated decisions. Our 360 Reviews team draws on this same unbiased approach to rate the products that you use every day. To build our ratings, we researched more than 25 life insurance companies and agencies and analyzed 14 third-party review sources. Our 360 Reviews team does not take samples, gifts, or loans of products or services we review. All sample products provided for review are donated after review. In addition, we maintain a separate business team that has no influence over our methodology or recommendations.

US News 360 Reviews takes an unbiased approach to our recommendations. When you use our links to buy products, we may earn a commission but that in no way affects our editorial independence.

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