Is life insurance worth it?

Is it worth the cost and effort needed to buy life insurance? It’s a good question, and one that you should ask before purchasing a policy. For some people, life insurance is an essential source of financial protection for their loved ones, and it may be worth every penny. For others, life insurance is an added financial vehicle that helps them reach financial goals – an important but somewhat discretionary purchase. For still others, life insurance is simply not necessary and not worth the cost.

As the Guardian Life Insurance Company, we believe in the value of life insurance. But the purpose of this article is to help you decide whether it has value for you. To that end, we’ll discuss:

• Who needs life insurance, and why

• What type of life insurance may be best for you

• Approximately how much you might expect to pay for life insurance

• Where to get help in making decisions on life insurance

Who should consider life insurance?

Anyone who owns a car needs auto insurance because it’s illegal to drive without it. Most people would agree that everyone needs health insurance because, without it, one is at risk of financial consequences in the event of a serious illness. And few homeowners would feel comfortable living without home insurance, even if it wasn't mandated by their mortgage company.

A life insurance policy is a little bit different. You can live without it. So, the question really is – should you? The answer depends on your individual circumstance and needs. Generally speaking, financial professionals suggest life insurance coverage for:

• People with dependents
  Life insurance is crucial for individuals with children, family members, or other dependents who rely on their income. Life insurance helps ensure that in the event of the policyholder's death, their survivors are financially protected and can maintain their standard of living. The life insurance death benefit – usually an income tax-free, lump sum payment - can help cover a range of expenses, from food and other daily living costs to mortgage payments and college tuition.¹

• People seeking living benefits
  A permanent life insurance policy’s cash value can be used to help achieve a range of financial goals. Cash value accumulated in a permanent policy is available to the policyholder during their lifetime, and can be accessed to help pay college tuition, health emergencies, and other life events – including retirement.^2,3

• Those with estate planning needs
  Life insurance can be a valuable tool for estate planning purposes. For example, it can simplify the process of leaving a financial legacy for one’s heirs or help pay estate taxes and other expenses associated with the transfer of assets.

• Those with debts or financial obligations
  If you have significant financial obligations, such as a mortgage or car loan, life insurance can help ensure that your survivors are not burdened with those obligations if you pass away.

• Business owners
  Life insurance can help protect a business and ensure its continuity in the event of the owner’s death. The life insurance death benefit can be used to cover business debts, facilitate smooth ownership transitions, and keep a business running.

Who might not need life insurance?

While there are many people for whom life insurance will undoubtedly be "worth it," there are also those for whom it may not be worth the expense:

• People with no dependents
  If you don’t have any dependents relying on you for financial support - and your death won’t cause financial hardship for others - you may not need life insurance protection

• People who can cover all expenses and debts
  Individuals without dependents, and enough assets to cover funeral expenses and outstanding debts in the event of their death, may not need a policy

• Those with substantial assets
  If you have dependents who rely on you for support but have enough savings and investments to support them in the event of your death, life insurance may not be a priority.

• Those with self-sufficient dependents
  When children or other dependents have their own income sources or are financially independent, the need for life insurance may be reduced.

• The elderly
  The cost of life insurance increases with age, and by the time one is well into their senior years, the cost of a new policy may be prohibitive.

• People with low income and few assets
  Although many types of life insurance can be affordable, individuals with very limited resources may not be in a position to purchase a policy and have to wait until their financial situation improves.

If you are still unsure about whether life insurance will be worth it for you, think about consulting a financial or insurance professional for guidance. They will be able to provide more details and help you to make the right decision.

If you need life insurance, what type is right for your needs?

If you think you need coverage, you should familiarize yourself with the most common types of life insurance policies. The more you know about life insurance, the better prepared you’ll be to make the right decision. Life insurance companies offer two basic types of policies - term life insurance and permanent life insurance. 

Term life insurance provides financial protection for a specified period, usually ranging from 10 to 30 years. It offers a straightforward and cost-effective option for individuals who want temporary coverage to protect their loved ones in the event of their premature death. Term life insurance provides a death benefit payout to your beneficiaries if you pass away during the term. But once the term is over, the coverage ends.

Term life insurance is typically appropriate for those who want cost-effective protection for a specific period of time. For instance, parents of young children may purchase a 20-year term policy to protect their children until they can support themselves. Or a working spouse may purchase a 30-year term policy to protect a non-working spouse until the couple has paid off their mortgage.

It's important to note that term life insurance premiums are typically less expensive than permanent policies, making the most significant death benefit amount more obtainable. In fact, term life coverage may be less costly than you think: A 30-year-old male who doesn't smoke can get a 20-year term life policy from Guardian with $2,000,000 of coverage for just $122 a month. If you're wondering what you might pay for similar coverage, Guardian can provide an instant online life insurance quote.

Permanent life insurance – whole life insurance and universal life insurance – generally costs more than term life insurance but can provide coverage that lasts your entire life.⁴ With a permanent policy in place, your beneficiaries will collect a death benefit regardless of whether you pass away at 50 or 100 years of age. The other main difference is that permanent life insurance provides an additional cash value component. When you choose a permanent policy, some of your premium payments can grow tax-deferred over time. After a certain point, the policyholder can access the accumulated cash value to use while they are still alive.

Permanent life insurance is typically appropriate for those who are willing to pay more for a policy that remains in force until they pass away – rather than for a limited period – and also offers a tax-efficient way to save money. Many people use permanent life insurance to supplement other investments and retirement savings vehicles.

Are there alternatives to life insurance?

While life insurance is one of the most efficient ways to help ensure the financial stability of your loved ones and dependents in the event of your death, there are other strategies and products that can serve similar purposes:

• Savings and Investments: Building a substantial savings account or investment portfolio can help provide financial stability for your loved ones.

• A substantial emergency fund: While it doesn't provide long-term income replacement, an emergency fund that covers at least 3-6 months' living expenses could be helpful if you are no longer able to provide for loved ones.

• Annuities: Annuities provide a steady income stream over a specified period and can provide long-term financial stability for your dependents.⁵

If you're considering alternatives to buying life insurance, carefully consider what your loved ones and dependents might need in the event of your death. And think about speaking to a financial professional who can help you make the right decision.

Term Life Insurance vs. Permanent Life Insurance: Cost for $500,000 Coverage

Average annual rates for women

Source: Quotacy, as published in NerdWallet. The lowest three rates for each age and policy type were averaged. Based on $500,000 of coverage for applicants in excellent health. Rates valid as of Jan. 7, 2023.

Average annual rates for men

Source: Quotacy, as published in NerdWallet. Lowest three rates for each age and policy type averaged. Based on $500,000 of coverage for applicants in excellent health. Rates valid as of Jan. 7, 2023.

This might be a good time to talk with someone who can help 

Now that you know a little more about life insurance, you may have more questions, such as whether term or whole life is best for your needs. Take the next logical step: talk with an experienced professional who will take the time to learn about your unique situation, listen to your coverage concerns, and patiently explain the different term life, whole life, and universal life options that may fit your needs and your budget. If you don’t know a financial professional, ask your friends for a recommendation – or contact Guardian to find a Financial Professional who can help. But don't put off making it happen: the younger and healthier you are, the lower your life insurance cost will typically be.

Frequently asked questions about the value of life insurance

Is it good to have life insurance?

It depends on your situation in life. If you have people who rely on you for monetary support – spouse, partner, children, elderly parents – life insurance can be vital because it can give them substantial financial protection in the event of your death. Conversely, if you have no dependents, life insurance might not be needed. That said, even if you have no dependents, permanent life insurance – but not term life insurance - can also help you accumulate tax-efficient cash value.

At what age is life insurance worth it?

Life insurance is worth considering at various stages of life, depending on ones’ circumstances and responsibilities. However, most people purchase life insurance when they take on responsibility for dependents – spouse, partner, children, elderly parents - or acquire financial obligations that would be passed on to others in the event of their death. That said, financial professionals typically suggest purchasing life insurance at the youngest age possible, when people usually qualify for more affordable premiums due to their good health and longer expected lifespan.

Do you really get money from life insurance?

Yes, of course, assuming one is dealing with a reputable, financially stable life insurance company. The main purpose of life insurance is to provide a “death benefit” in the event of the policyholder’s death. That benefit is usually paid out as an income tax-free lump sum, which the policyholder’s beneficiaries can use to maintain their lifestyle and pay their bills, potentially replacing years of income the policyholder would have otherwise provided. And with a permanent life insurance policy, the policyholder doesn't have to pass away to access funds. These policies build tax-efficient cash value that can be borrowed against and accessed in various ways while the policyholder is still alive.