The main considerations of owning a life insurance policy come down to finances. The biggest advantage is that if you die, your beneficiaries receive a lump-sum payout called a death benefit. The biggest disadvantage is that you have to pay monthly or annual premiums for this benefit.
The pros of having life insurance outweigh the cons for most people with financial responsibilities such as mortgage payments, children, or other debt.
Advantages of buying life insurance
It offers financial protection for your family.
It’s affordable for most people.
It gives you peace of mind.
It completes your financial plan.
It’s customizable.
It’s easier than ever to apply for it.
1. Life insurance offers your family financial protection
Your policy’s death benefit — how much money your beneficiaries receive if you die — can cover future living expenses for your family, like mortgage payments and your children’s college tuition. It can also provide a financial cushion for unforeseen expenses.
The death benefit is most commonly paid out as a tax-free lump sum, so your family will be able to use the money for whatever they need, including:
Your end-of-life costs, like funeral expenses or medical bills
Housing costs, including paying off a mortgage or paying rent
Other debts, like student loans, credit cards, or car payments
Current or future college education costs for your children
Childcare
Replacing financial support you provided
Everyday costs, including food, transportation, and healthcare
Vacation
2. Life insurance is cheap enough to fit most budgets
For most people, term life insurance is an affordable option. Depending on how much coverage you need and your age when you apply, you may be paying as little as $20 per month in life insurance premiums for a term life insurance policy.
Term life insurance only lasts as long as you need it, and the younger you are when you purchase your policy, the cheaper your premiums will be.
3. Life insurance gives you peace of mind
Life insurance is similar to other products, like health insurance or car insurance, in that you hope you don’t fall ill or get into a car accident, but if you do, you know you’re covered for a worst-case scenario.
This peace of mind is crucial, especially for anyone who has large debts or has family members who depend on their income.
4. Life insurance completes your financial plan
The goal of life insurance is to provide a financial safety net for your family in case something happens to you. That’s why most people choose to buy a life insurance policy that will cover them until retirement.
If you have debt or anyone depending on your income, a life policy will guarantee that your family will be financially protected if you die before you reach retirement age.
For a minority of people, whole life insurance can be a useful tool in financial planning. If you’ve taken advantage of other investment options like a 401(k) and IRA, whole life can serve as an alternative investment option to leave behind more for your family.
5. Life insurance is customizable
Life insurance riders are optional add-ons that let you customize your life insurance policy and obtain additional coverage in unique situations. Your agent can help you learn about what riders are available for your policy and if they make financial sense to add.
Options include:
Accelerated death benefit rider: If you’re diagnosed with a terminal illness, you can get all or part of the death benefit paid out before you die.
Long-term care rider: If you require long-term care, such as a nursing home, you can take money out of your death benefit to pay for the expenses.
Disability income rider: If you become unable to work due to a disability, you can get a monthly stipend.
Waiver-of-premium rider: If you become disabled, you can keep your policy and have your payments waived until your disability ends.
Term conversion rider: You can convert your term life insurance policy into a permanent life insurance policy.
6. It’s easier than ever to apply for life insurance
Policygenius makes it easy to compare life insurance prices online. In just about 10 minutes, you can get free quotes from many of the top life insurance companies in the country.
We have a team of non-commissioned agents who can help you decide what type of life insurance is best for you, how much coverage you need, and guide you through the application process.
Disadvantages of buying life insurance
It can be expensive if you’re older or have health conditions.
Whole life insurance can be unaffordable in the long run.
Cash value can be a weak investment tool.
Applying can be daunting.
1. Life insurance can be expensive if you’re older or have health conditions
Life insurance is most affordable if you’re young with minimal health conditions. Your premiums are determined by your medical profile, family medical history, and age. If you’re older or have serious health issues, life insurance can be very expensive and may not be worth getting at all.
Life insurance companies often charge you more for coverage if your profile includes factors that could potentially increase your risk — for instance, a chronic illness or a high-risk hobby, like skydiving. When you speak with an agent, be sure to tell them about any health issues you have so they can get you the most accurate quotes possible.
2. Whole life insurance is expensive and comes with surrender fees if you can’t afford to keep it
Whole life insurance is significantly more expensive than term life — it often costs hundreds of dollars per month. Most people don’t need as much life insurance after they retire anyway, so if you get a whole life policy when you’re young, you’ll be spending a lot of money on something you don’t necessarily need.
For a more cost-effective option, you could consider term life instead. This way, your coverage lasts only as long as you need it, and you won’t overpay in premiums.
3. The cash value component is a weak investment vehicle
Whole life insurance policies come with a cash value component that earns interest at a fixed rate. Once you’ve accumulated enough cash value, you can borrow from it or use it to cover your premiums.
But as an investment option, the rate of return on a cash value account is lower on average than simply investing the money in a Roth IRA, 401(k), or another alternative investment account. Plus, it can take years — or even decades — to build enough cash value to make a loan or withdrawal.
Unless you’ve already taken advantage of other investments, it’s safer to pay lower premiums for term life insurance and invest your extra cash in a traditional retirement account or increase your 401(k) contributions.
4. Applying for life insurance can be daunting
There are a lot of questions when it comes to life insurance: What kind of policy is best for me? Should I buy term life or whole life? Am I even eligible for coverage? Are there companies that charge less than others for the same risk factor?
Applying for life insurance on your own can be overwhelming — but we’re here to help.
Working with an independent broker like Policygenius can help you get the right coverage at the right price. Because our agents are not commissioned, they’re able to work to get you a policy that makes sense for your financial needs and fits your budget.
How to get the best life insurance coverage
Sign up for life insurance early
The younger you are when you get life insurance, the cheaper it will be. You’ll save hundreds of dollars on your premiums if you sign up for life insurance when you’re younger and have fewer health conditions.
Tell the truth on your life insurance application
If you die during the first two years that your life insurance policy is active – the contestability period – the life insurance company may investigate your application if you die. This usually only happens if they suspect that there may have been misinformation on your initial application.
If your insurer finds that you misrepresented yourself in an effort to get cheaper coverage, they may cancel the policy outright, reject your beneficiary’s claim to the death benefit, or pay out a reduced death benefit.
Buy only the coverage you need and invest the rest
While having life insurance coverage is an important part of financial planning, more is not always better. You need enough life insurance coverage to cover any financial loss that will occur if you die, but you also want to get a policy with affordable premiums that make sense for your budget.
A Policygenius agent can walk you through the advantages and disadvantages of life insurance to help find the right policy for you.
Frequently asked questions
What are the advantages of life insurance?
The biggest advantage of life insurance is that it pays out a tax-free lump sum to your beneficiaries if you die. The funds ensure that your loved ones won’t be financially strained and can afford everyday expenses.
What are the disadvantages of life insurance?
Life insurance can be expensive, especially if you are older or have health problems. No matter your situation, speaking with a licensed agent can help you find the right amount and type of life insurance, so that your family will be covered at a cost you can afford.
Should I get term or whole life insurance?
For most people, term life insurance is a better option because it’s more affordable and only lasts for as long as you need it. For a minority of people who have maximized all of their other retirement options, like a 401k, IRA, or those who have dependents that require lifelong care, getting a whole life policy could be a good option.
