This is a very difficult question to answer because the need for insurance is subjective (unless it is mandated by law, as it is with health and auto insurance across most of the country). We all know that one day our number will be up. Even more than taxation, death is a foregone conclusion. For this reason, life insurance seems like a good idea. If you’re definitely going to die, why not make sure that you leave behind some money for your loved ones? At the very least, they’ll have to pay for your funeral expenses, and if you die before your time, so to speak, you may leave your partner or children with a mortgage, credit card debt, and other expenses.
With many low cost options, life insurance is a gamble. You’re betting the policy will pay out before you’ve paid in more than it’s worth, over the course of a lifetime. The insurance company, on the other hand, is betting they’ll get their money’s worth before they pay out. Or more likely, they’re hoping that you’ll let your policy lapse and they can pocket your money for as long as you keep paying, and then they’ll pay out nothing in return. But if you choose the right policy, life insurance can definitely pay off in a purely monetary sense. And just in case the worst should happen, you can’t entirely discount the peace of mind that comes with having such a policy in place.
It’s important to understand that there are two main types of policies you can choose from: permanent and term. You’ve probably heard permanent policies referred to by more common names like universal or whole life insurance. The idea with both of these subcategories of permanent life insurance is that you will continue to pay a set premium for the rest of your life and enjoy the same coverage until you pass away (supposing you have no lapses or defaults in payment that would negate your policy and send you back to the negotiating table). There are many variations on the theme, but this is the basic gist of a permanent life insurance policy.
Term life insurance, on the other hand, is a temporary policy with a set expiration date. Often, the premiums are far less for the same amount of coverage, especially if you’re young and healthy when you purchase the policy. The reason for this is that you have less risk for death when you’re young and healthy, and less risk equals less cost in the insurance game. You could select a policy term of, say 10, 15, or 20 years, for example. But what happens when your insurance expires? Well, you have to negotiate for a new policy. Only now you’re older. Maybe you’ve had an accident or illness that changed your medical history. Maybe you smoke, drink, or have other risk factors you didn’t have 10 or 20 years ago when you purchased your first policy. All of these factors could increase your monthly rate.
If you had started with a permanent policy, you would have paid more initially, but your payments would have remained the same. Now that your term life insurance has expired, you’ll be on the hook to pay more, no matter what type of policy you choose. So you simply have to weigh your options and decide which will work best for you now and in the future. Is it worthwhile? That depends entirely on you, including your risk factors and what you feel comfortable with. But if you pass away, you can bet that the family you leave behind will be glad you had a life insurance policy in place.