Updated September 30, 2019

Is Term Life Insurance Worth It?

Read more about Life Insurance

Term life insurance is inexpensive, but there is the chance that you'll never actually use it. Is it worth it? Read on to learn when it's necessary.

Term life insurance only lasts for a certain term. You pay a monthly premium, and if you don't die within the term, that's it—it just ends.

This seems like a waste of money to a lot of people. After all, none of us plan to die until we're old and ready.

So is it worth it to get term life insurance?

Unfortunately, unexpected things happen. This is when life insurance can provide financial security to your loved ones. Life insurance may be worth it to you if:

Read on to learn more about these in detail.

Life Insurance Isn't For Everyone:
If no one relies on your income or services you provide to your family, and you wouldn't leave a pile of debt for someone else to pay if something happens to you, then you might not need life insurance at all.

Examples of this would be if you're a retiree with no spouse or children, or if you're a young single person with no plans for a family.

Someone Relies on Your Income

If your family needs your income, they would suffer financially if you suddenly died.

The amount of income you need to replace is different for each family. You might not need to replace all your income, but just a part of it. Here are some things to consider.

  • How much income your family needs now if you were not there

  • How much your spouse makes and is capable of making

  • Your old lifestyle (maybe you had expensive hobbies that would no longer cost money once you're gone)

  • Whether you want to leave enough to send the kids to college

  • How many years your family would need income replacement (forever or until the kids graduate from college?)

  • Would the surviving spouse want to take time off work to grieve and get their life back into order? If so, provide enough income replacement that allows for that.

You can calculate a more precise amount using the information in this article.

What about a double tragedy?
Maybe both parents make plenty of money and either one could easily provide for the family by themselves. Look at your net worth. Is your estate enough to provide for your children if an accident took both of you? If not, life insurance is an easy solution.

You'll want to make arrangements for a guardian or a trust to make sure the assets are used the way you want them to be used and aren't handed to your children on their 18th birthday. That's a recipe for a tragedy that can easily be avoided.

You Provide Services for Your Family

Even if one of the parents doesn't work, it's still smart to take out life insurance on him/her. Here's why:

If you provide services for your family, this is still work that has monetary value. This could be caring for the children, keeping house, taking the kids to after-school activities, etc.

Who would do all this work if you were gone? Your death would have a negative financial impact on your family.

  • Child Care: The average cost of child care is about $1,000 per month per toddler. In expensive cities, this can be 50% higher. After the children are in school, after-school care is often still over $500 a month for each child.

  • Shopping, Cooking, Cleaning: If you're gone, your spouse would become a single parent who has to do all the chores you used to share. Life insurance could provide money to get help so your spouse can spend more time with the kids.

  • Home Maintenance and Repair: Do you want your spouse to choose between spending the weekend teaching the children how to fly a kite or pressure washing the driveway? If your spouse isn't handy, this is a choice between letting things fall into disrepair or having the money to pay someone to fix things when they break.

  • Transportation: Transportation becomes complicated real fast where there is only one adult and more than one child. What happens when there are two soccer games at different locations? Many children's activities occur during regular business hours. If transportation isn't available, they can't participate.

Life insurance would allow you to hire people to help with these tasks, or allow you to work less and take on these responsibilities.

You Have Debts

If you die in debt, your family may be required to pay your debts. Your death will already be an emotional toll on your family. Imagine if they are burdened with paying off your debts too.

Here are some debts to consider:

  • Mortgage: If you have a mortgage, it's smart to get enough life insurance to cover the mortgage amount. This provides security for your family. They won't have to move or be at risk of losing the house.

    The mortgage company may offer you coverage when you buy the house. If you're healthy, you will get a better deal buying it on your own.

  • Student loans: Paying off student loans for someone who will never use the education is a tough burden to leave your family. If you co-signed for your child's student loans, you can get insurance on your child to cover their debts, too.

  • Other large debts: This could include credit card debt, medical debt, or business debt. Consider these debts when you decide how much insurance to purchase.

    If you're a dentist with a private practice, you incurred a big debt when you set up your practice. Boats can also come with a large loan and they may not be worth what you owe if you sell it.

Life Events That Trigger the Need for Life Insurance

Many financial advisers will tell you not to buy life insurance until you buy a house or have children.

My advice is different. If you are trying to conceive or are expecting, buy life insurance. I've seen too many times when the father waited too long.

To give you an example, on 9/11, one hundred unborn babies were left without fathers.

Closer to home for me, my best friend's husband was killed six months after their wedding. She was five months pregnant. Later, a neighbor of mine was happily expecting twins when her husband died. Neither of them had life insurance.

Consider whether you need life insurance any time one of the following events happens:

  • You get married
  • You decide to try to have a baby
  • You have a baby
  • You buy a house
  • Your income changes
  • You increase your debts
  • You get divorced
  • You inherit money that makes your estate large enough to pay estate taxes

What Kind of Insurance?

This article addresses temporary needs. For this, term insurance is enough. The policies are inexpensive and will provide the cash needed at the time of death.

Whole life insurance is best if you absolutely need the payout no matter when you die. A common example is to pay estate taxes. Most families do not have estates large enough to worry about that at the Federal estate tax level. Check the estate tax laws in your state to understand what is involved.

If you need insurance to pay estate taxes, you can buy a whole life policy to cover estate taxes and a term life insurance policy to cover everything else.
Or you can get a whole life policy with a term insurance rider for your temporary needs. This may save you money because you'll only pay one policy fee.

What Will Term Insurance Cost?

Term insurance is generally very affordable. Your price will vary based on your age, health status, and length of term. It would cost less for healthier, younger people.

Here are some examples:

  • A 25-year-old woman who doesn't smoke can buy $300,000 of 30-year term life insurance for $22.05 a month. If she smokes, it would be $38.33 a month.

  • At 29, she could buy $1,000,000 of 30-year term life insurance for $63.88 a month. For the same coverage, it would cost $77.88 for a 29-year-old man.

  • A 35-year-old man who doesn't smoke can buy $300,000 of 20-year term life insurance for $20.65 a month. His wife could buy the same coverage for $18.81.

  • At 39, he could buy $1,000,000 of 20-year term for $73.87 a month and she could buy the same coverage for $62.13.

Notice that the shorter term reduces the rate even though he is older.

Other Questions

Do you need life insurance on the children?
Most people don't need life insurance on their children. Children (in most cases, anyway) don't provide income to the family, so there's no need to take out insurance on them.

It's most important to protect the family's financial security first. Take care of the things that pose the greatest risk. These include: disability income insurance on the parents, health insurance on the family, life insurance on the parents, retirement savings, and an emergency fund for the family.

Once those needs are met, saving for the children's college expenses is more important than life insurance on the children.

That being said, if your employer offers small policies on children for less than $10 a month and it gives you peace of mind to know you would be able to afford a funeral, go ahead.

What about term insurance from work?
If you are healthy, you can buy an individual, fully underwritten policy for less than you would pay for group term. Group policies usually provide less coverage than you need.

Group term ends when your job ends. Even if you can convert it to an individual policy, is that the choice you would make if you were laid off?

I know one woman whose husband only had group insurance. Two months after he was laid off, not long after his group coverage terminated, he had a heart attack. They didn't have any other life insurance.

Bottom Line

Life insurance is one of those things that you hope you would never need, but if something did happen, your family would be glad to have it.

Term life insurance is a small price to pay for some much-needed peace of mind. It is a great tool to manage the financial risk of your premature death. For just a couple of bucks a day (or even less), you can provide security for your family.

Write to Jeanine J at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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