We’ve talked about times in your life when you need life insurance, how to figure out your coverage needs, and even how to pick your beneficiaries. But there’s still a question that still lingers with life insurance (and many insurances): is term life insurance actually worth it?
Short answer: If you have financial dependents, yes, definitely.
You have to approach life insurance like you would any risk assessment and ask yourself what the worst case scenario is. For dental insurance, what if you need that root canal? For car insurance, what happens if you total your car in an accident? For cell phone insurance, how many times have you lost your phone? For life insurance, how will your family’s finances hold up if you die?
For many people, the answer to the last question is: not well. That’s why term life insurance is so valuable. It’s an affordable way to financially protect the people you love.
Why Is Life Insurance Necessary?
Life insurance helps provide financial security if you were to die suddenly, so that your family won’t struggle to cover day-to-day expenses. It can help:
- Replace lost income and cover living expenses, like rent or a mortgage
- Spare your family from needing to pay off debts you leave behind
- Provide for your kids’ care if you are a stay-at-home parent
- Cover burial, estate taxes and other final expenses
- Fund college expenses
- Cover unpaid medical bills or taxes
- Create an inheritance or supplemental retirement fund through an income tax-free death benefit
Your family’s savings shouldn’t be depleted to cover those expenses.
Even if you’re a Millennial without a spouse or kids, term life insurance may still be necessary to protect your parents or other co-signers from needing to pay off the mortgage, student debt, credit card debt, or even a car loan that you leave behind. However, the key moments to consider a policy are major life milestones like getting married and having a child.
How Term Life Insurance Works
Term life insurance is one of the few financial products whose name clearly carries its meaning. It insures your life for a period of time you choose, such as until your mortgage is paid in full or your kids are adults. This helps ensure that none of your financial obligations will burden your family if you were to die unexpectedly during the term length.
Most insurers offer term lengths of 10, 15, 20, 25, and 30 years. You make (in the case of Haven Term* policy owners) monthly payments for the policy term, and in the event of your death, the policy pays out a death benefit to your beneficiaries. Determining which term length you need is actually very easy and most online calculators will give you an estimate based on your financial situation.
How Much Does Term Life Insurance Cost?
Term life insurance is low cost. However, many people don’t realize that.
A recent report from LIMRA found that many young adults overestimate the cost of life insurance. Just how much exactly? The median guess among young adults was $600 per year or $50 per month for a 20-year, $250,000 policy.
To put it into perspective, a Haven Term quote for a healthy, 30-year-old woman at the same policy amount and term length is about $12 per month. That’s less than your HBO Go account.
Why Term Life Insurance Versus Other Types?
We mentioned above that term life is cost-effective — that’s because it’s also one of the most affordable types of life insurance. When compared to permanent life, it’s far less costly. For example, a $500,000 whole life insurance policy for a healthy 35-year-old male would likely cost more than $500 per month, compared to $21 per month for a term policy.
The price difference can be attributed to the fact that permanent life insurance policies cover you for a lifetime versus a term length. They also have a cash value component that you can borrow from.
Overall, term life insurance is a simple and affordable life insurance option. It has no investment components to track, and no cash value or loans that impact your death benefit. You simply make the monthly payment, and you’re covered for the specified term length. Term life also requires only minimal maintenance – just a review of your financial needs periodically – like when you have another child or if your income increases considerably from when you first took out the policy (good problem to have!!).
Employer-Provided Life Insurance is Often Not Enough
If you have employer-provided life insurance, you might think you have enough. The fact is that most people don’t have enough term life insurance through their employer if they are married, have kids, or hold significant debt like a mortgage. Most employer-provided policies only cover, at most, two to three times your income, while the often-recommended amount is at least six to ten times.
One other important consideration is that coverage will most often end when you leave your job. And since term life insurance is cheapest when you’re young and healthy, you could have to pay a lot more after you switch jobs or if you retire early. Your best bet is to hold an individual policy to ensure you have enough coverage and lock in a good rate.
If you’re unsure whether your employer benefits are enough, visit our calculator and compare our quote to what’s in your benefits package.
Understanding Your Needs
Term life insurance isn’t a complex financial product and is a necessary part of financial protection. What’s most important is that you understand what your coverage needs may be and if you do need coverage, make sure you’re not putting off the purchase.
Like we mention above, term life insurance (and most life and health insurance for that matter) is more affordable when you’re young and healthy. The earlier you buy your term policy, the better your rates. So the time to comparison-shop and act is now. Given its low cost and high value, a term life policy that fits your coverage needs is clearly worth it. Picture the alternative: dying without a policy and the potential for leaving your family with a huge financial burden. That’s a high cost to pay.