Is Life Insurance Worth It?

Whether life insurance is worth it depends largely on your circumstances.
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Is Life Insurance Worth It?

Written by Brian Greenberg
CEO / Founder & Licensed Insurance Agent

Last updated: November 24th, 2022

Reviewed by Rebecca Thrift
Licensed Insurance Agent

Term life insurance can be worth the cost if you have dependents who would be financially unstable if you were to die. The knowledge that a mortgage and college expenses would be covered can be worth more than just peace of mind to you now, it can also ease the future of your heirs.

In addition, if you’re in need of tax deferrals, permanent life insurance can be part of a smart tax strategy. This is especially true if you’ve already invested the maximum allowed into your 401(k) and individual retirement accounts (IRAs). By investing in life insurance, you can defer the taxes due on that income until you retire and are in a lower tax bracket.

What Makes Life Insurance a Good Investment?

Whole life insurance can be a good investment for someone who needs to diversify their portfolio. It’s also a solid choice for those who want to avoid risky investments, such as the stock market. While the returns are typically lower than those in more traditional retirement instruments, for many people, the knowledge that their investment is safe and reliable is worth the trade-off.

People with a high net worth may max out their tax-deferred IRAs and 401(k) retirement accounts fairly quickly. Those looking for retirement investments with further tax deferral benefits often turn to whole life insurance policies, which can be surrendered for cash later if needed. Very high net-worth individuals also often turn to life insurance as a way to help their heirs pay estate taxes.

Life insurance can be a good investment for those with a lifelong dependent, such as a sibling or child with a physical disability. A whole life insurance policy can be part of a trust that provides for this dependent after your death.

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What Are the Pros of Having a Life Insurance Policy?

Having a life insurance policy provides more than peace of mind. A person who wants to make sure that their loved ones are cared for in the event of their untimely death may opt for term life insurance to pay off the mortgage and cover future college tuition. Others may opt for a permanent life insurance policy with a cash value to add to their investment portfolio. Among the positive reasons to purchase life insurance are the following:

  • Increased value: Cash value of a whole or universal life insurance policy builds over time. You can tap into this value to supplement retirement funds or to use for major purchases, such as a home or automobile.
  • Speedy access: A term life insurance policy can be available for use quickly after your death, so your heirs can pay for funeral costs, final medical bills, and other expenses related to your estate.
  • Inheritance: Your life insurance provides a cash benefit that can serve as an inheritance to the person named as beneficiary on your policy, guaranteeing that the person you want to receive the money actually receives it.
  • Tax benefits: Life insurance benefits aren’t taxable, and the beneficiaries don’t have to declare any payout on their taxes.
  • Access to medical bills: Riders on many life insurance policies allow you to access the death benefits before your death if you’re diagnosed with a terminal illness. That lets you use the life insurance money to pay medical bills, so you don’t saddle your heirs with debt.
  • Charitable contributions: Life insurance policies can name nonprofit organizations as the beneficiary. This allows you to make a significant charitable contribution securely after your death.

Who Needs a Life Insurance Policy?

While life insurance isn’t for everyone, it can provide real peace of mind for some while moving them closer to their financial goals. Among the people who should look into life insurance are:

  • People with long-term bills to pay: If you want to make sure your spouse can keep paying the mortgage or your children have money for college in the event of your untimely death, a term life insurance policy can be a good financial choice.
  • People with dependents with special needs: A child with special needs can require care for their life, which is likely to last longer than the life of their parents. A life insurance policy can provide resources for that future care.
  • People with significant debts, including student loans: Some debts don’t get canceled with death, including many private student loans. A life insurance policy protects your heirs, so they don’t get weighed down with unpayable debt after your death.
  • Stay-at-home spouses: If one spouse brings in the bulk of the income for a household, a term life insurance policy can provide a much-needed safety net for the surviving spouse and children relying on that income.
  • Small business owners: When an entrepreneur dies, their company is at risk. Many owners of small to midsize businesses take out key person insurance, which is life insurance paid for by the company.

When Is Life Insurance Not Worth It?

Someone who has no dependents and no debts is unlikely to need life insurance. If you have the savings or other resources to cover any end-of-life expenses or funeral costs, life insurance may not be needed. People who have ample resources to provide for their dependents also may not need life insurance. In addition, those who are living on a tight budget probably should direct their resources toward basic expenses, such as food and shelter.

What Is the Best Place to Purchase Life Insurance?

At Insurancy, we can help you find the right life insurance with a short questionnaire. We’ll match you to your top options and help you figure out the costs involved. We make it easy, shortening your waiting time and keeping everything simple.

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Key Takeaways

  • Permanent life insurance can be a good investment for people who need to diversify their portfolio or those who have maxed out their traditional retirement investments, such as IRAs or 401(k)s.
  • Term life insurance beneficiaries typically appreciate the speedy access they have to a cash benefit after the policyholder’s death, as well as the fact that life insurance benefits are tax-free.
  • Life insurance is a good choice for small business owners and those who have significant debts to pay or dependents with special needs.

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