Is Life Insurance Worth It?

Situation and lifestyle factors can affect the perceived value of life insurance. Therefore, it is necessary to understand both the advantages and disadvantages of owning a policy and alternatives that can offer similar protection.

Terry Turner, Financial writer for Annuity.org
  • Written By
    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner is a senior financial writer for Annuity.org. He holds a financial wellness facilitator certificate from the Financial Wellness Foundation and the National Wellness Institute, and he is an active member of the Association for Financial Counseling & Planning Education (AFCPE®).

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    Savannah Hanson
    Savannah Hanson, financial editor for Annuity.org

    Savannah Hanson

    Senior Financial Editor

    Savannah Hanson is an accomplished writer, editor and content marketer. She joined Annuity.org as a financial editor in 2021 and uses her passion for educating readers on complex topics to guide visitors toward the path of financial literacy.

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    Stephen Kates, CFP®

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    Stephen Kates is a Certified Financial Planner™ and personal finance expert specializing in financial planning and education. Stephen has expertise in wealth management, personal finance, investing and retirement planning.

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  • Updated: November 30, 2022
  • 6 min read time
  • This page features 2 Cited Research Articles
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How to Cite Annuity.org's Article

APA Turner, T. (2022, November 30). Is Life Insurance Worth It? Annuity.org. Retrieved December 5, 2022, from https://www.annuity.org/life-insurance/buy/is-life-insurance-worth-it/

MLA Turner, Terry. "Is Life Insurance Worth It?" Annuity.org, 30 Nov 2022, https://www.annuity.org/life-insurance/buy/is-life-insurance-worth-it/.

Chicago Turner, Terry. "Is Life Insurance Worth It?" Annuity.org. Last modified November 30, 2022. https://www.annuity.org/life-insurance/buy/is-life-insurance-worth-it/.

Key Takeaways
  • Variables that affect the worth of life insurance include your responsibilities to dependents, the state of your finances and medical qualifications.
  • Generally speaking, life insurance is worth the cost for those with dependents or financial obligations.
  • Life insurance is for people of all ages and is typically more affordable the younger you are.
  • It is important to recognize the positive and negative aspects of adopting a life insurance policy.
  • There are alternatives that can offer similar protection, like annuities and mortgage insurance, if life insurance is not the best option for you.

While 52% of Americans have life insurance, that number is shrinking. So, if you are questioning the value of life insurance, you’re not alone.

Life insurance can provide a measure of security for your loved ones should anything happen to you. Your life insurance might cover final expenses, pay off a mortgage or handle your loved ones’ day-to-day expenses. But you might still wonder if it’s worth it since paying for something you may not use can seem like a waste of money.

In general, if you have anyone who depends on you for financial support, having a life insurance policy for their protection and your own peace of mind is valuable. According to the 2022 Insurance Barometer Study by the Life Insurance Marketing and Research Association (LIMRA), only 47% of families without life insurance said they would be financially secure if the primary wage earner suddenly passed away (compared to 68% of those with life insurance).

Who Usually Gets Life Insurance?

People with dependents and financial obligations that would fall to others if they died often buy life insurance. Incorporating life insurance into your financial planning is an excellent way to ensure that your loved ones are looked after once you’re gone.

In fact, the 2021 Insurance Barometer Study revealed that over half (52%) of all American adults own some form of life insurance coverage, whether it’s an individual plan or something sponsored by an employer. In light of the pandemic, 31% of American adults say they are now more likely to buy life insurance than they were previously.

Even though it’s a common misconception that life insurance is only for the elderly, younger people can benefit from these policies. The younger and healthier you are when you buy life insurance, the more affordable your monthly or annual premiums are likely to be.

Advantages of Life Insurance

There are several key advantages to owning life insurance, with specific benefits depending on the kind of insurance you have.

Term life insurance, for example, covers a specific period and can be a good investment for ensuring you don’t leave your loved ones burdened by your debts or final expenses. Some permanent life insurance policies, on the other hand, have an investment component and help you grow tax-deferred wealth.

Advantages of life insurance include:
  • Financial protection for loved ones and peace of mind for you
  • Term coverage is generally less expensive and has lower premiums
  • No-exam term life insurance policies may allow you to skip a medical exam
  • Flexible coverage options with term policies, include laddering
  • Term life insurance can convert to permanent insurance
  • Options for tax-deferred growth in some permanent life insurance policies
  • Lifetime coverage doesn’t expire after a set period (assuming premiums are paid)
  • You can borrow against the cash value without penalty
  • Accelerated benefits option lets you access policy early to pay for final medical bills

Disadvantages of Life Insurance

Despite their benefits, a life insurance policy may not be appropriate for every situation or for every person. Cost may be a factor, you may not qualify for medical reasons or a policy may have tax implications for beneficiaries.

Disadvantages of life insurance include:
  • Permanent life insurance can be expensive and require you to pay high premiums
  • Term policy premiums go toward securing a death benefit for your beneficiaries and build no investment value
  • If you outlive your term policy, the coverage lapses and your beneficiaries get nothing
  • Costs for life insurance increases with age and the longer you wait, the higher the premiums will be
  • You may not qualify for life insurance because of health guidelines or pre-existing medical conditions

How To Decide if Life Insurance Is Right for You

When deciding if life insurance is right for you, it helps to look at what stage of life you’re in and determine the benefits of life insurance for you and your beneficiaries.

Someone who is single, independently wealthy or has no dependents may not benefit from life insurance. On the other hand, some single people will still buy life insurance so that they might take care of a parent, sibling or business partner who is not a dependent but who might struggle financially without them.

However, for those people who have loved ones who depend on them financially, or for someone who has debts that would become the responsibility of their dependents or estate, life insurance is likely worth it. It offers financial protection to those you love and is prudent financial planning.

Alternatives to Life Insurance

If, for whatever reason, life insurance is not the right solution for you or not the right solution right now, there are similar alternatives you can consider that can take the place of traditional life insurance.

Some Alternatives to Life Insurance
Annuities
Annuities are safe, customizable long-term investment contracts issued by an insurance company. They provide a reliable, steady stream of payments to support your financial needs for the rest of your life or for a predetermined number of years. Buying an annuity is a good idea if you are nearing retirement and are looking for a strategy to protect yourself from outliving your income.
Investments and Saving
Perhaps the simplest alternative to life insurance is to invest and/or save money over an extended period. If you’re willing to accept a certain amount of risk and volatility, the stock market, over time, traditionally provides solid returns for those who invest wisely. This approach is particularly helpful the earlier in life you start.
Long-Term Health Care Policies
Medical bills can be significant for many people, especially as they age or during end-of-life care. Some may benefit more from purchasing a long-term health care policy that will cover chronic illness and disability or pays for extended nursing care.
Funeral Pre-Payment Plans
As life insurance is often used to pay for final expenses, like funeral costs, pre-paid funeral plans provide a way for people to either pay in advance or otherwise set aside money for their funeral before they pass. There are different ranges of plans, depending on your preferences, and the plans can be paid in installments directly to your chosen funeral home.

Editor Samantha Connell contributed to this article.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: November 30, 2022

2 Cited Research Articles

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  1. Insurance Information Institute. (n.d.). Facts + Statistics: Life insurance. Retrieved from https://www.iii.org/fact-statistic/facts-statistics-life-insurance
  2. Wood, S., Leyes, M., & Scanlon, J.T. (2021, November 1). 2021 Insurance Barometer Study. Retrieved from https://www.limra.com/en/research/research-abstracts-public/2021/2021-insurance-barometer-study/