Is life insurance worth it?
- The concept of life insurance dates back to Ancient Rome, where military general Gaius Marius began a “burial club” amongst his soldiers in which “should one of them be killed in a military campaign, the survivors would band together to pay for the funeral expenses.”
- Fifty-four percent of all Americans had some form of life insurance in 2020.
- According to the World Health Organization, the life expectancy of men at birth in the US is 76.2 years, while for women, it is 80.7 years. For this reason, life insurance typically costs more for men.
- According to the Social Security Administration, twenty-somethings have a more than 25% chance of becoming disabled before retiring. At the same time, consumer education organization Life Happens relates that, depending on gender, 25 year-olds have a 16% (men) or 11% (women) chance of dying before reaching age 65. Because life insurance does not cover disability, some financial advisors suggest having both types of insurance.
None of us intend to die before old age. However, accidental death ranks number three as all causes of US deaths. Unlike medical insurance, which helps pay for sickness or disease, or auto insurance which pays for a wreck, life insurance is about providing a bit of financial comfort to your family after your death.
For children, a parent's life insurance could mean the difference between attending college or being forced directly into a minimum-wage workforce. For a spouse, it could mean paying off the house, getting a degree to support the family full-time, or paying for childcare and housework. For elderly parents, it could be the financial assistance they need during the final years of their life. If you leave behind a disabled child, spouse, or parent who relies upon you for survival, a life insurance payout could mean a lot to them. No matter the family dynamics, life insurance can be that one thing that helps take away the immediate stress of losing you. Even paying for your funeral could be a catastrophic bill to your family if they were left without a life insurance payout.
Since old age is not guaranteed, the best time to purchase life insurance is during one's younger adult years when the cost is lower. Additionally, life insurance is not usually subject to taxes and paying off your creditors if there is a financial separation between you and the beneficiary. Discussing these limitations with the adult beneficiary is important when obtaining life insurance. The usage of these funds should sustain your loved ones lives while they grieve your loss and create a life map without you.
Buying life insurance is not worth it for several reasons: it can become too expensive, it does not pay out the actual cash value to beneficiaries, and it is not recommended by financial experts as the best investment to grow the wealth to care for dependents and cover funeral expenses after death. Buying life insurance can become too expensive over time to make the payments, and all of the money already spent on premiums for the policy most likely will not be refunded as they have essentially already been paid out to others. Funders may receive nothing in return. Beneficiaries also do not receive the actual cash value of the life insurance policy, only a death benefit, as the rest of the cash value is then kept by the insurer.
Likewise, there are other choices for investment that are not so costly. Financial experts recommend investing in savings plans instead, like IRAs and 401ks, or similar plans that will offer a full return, without all of the additional fees that life insurance also requires. For example, annual investment fees for life insurance can be 3% or more, compared to mutual funds with annual fees that only range from about 0.5-1%. With all of the additional fees, it could take over ten years for life insurance to finally accrue a positive cash value from premiums paid. Buying life insurance isn't worth it; other choices are better to invest and grow wealth that can offer financial security for loved ones without having to lose so much money in the process.