Is life insurance worth it?
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- Life insurance can be a good tool to supplement your investment strategy.
- Life insurance shouldn't be a replacement for traditional savings and investments like a 401(k).
- Your financial situation should dictate whether you need life insurance.
Most people get life insurance to help cover the mortgage, education, and other expenses for their family after they die. The goal of having life insurance is to ease the burden on your loved ones after your loss.
Permanent life insurance is good for its ability to build wealth and as an investment tool during your lifetime using the cash value that accumulates over time. However, when it comes to investments, life insurance should be part of a holistic financial planning strategy; it shouldn't replace other investment accounts like a 401(k).
Is life insurance a good investment?
"If you don't make it home and someone relies on your income to live, you need life insurance," Mark Williams, CEO of Brokers International, told Insider.
When it comes to investing, Williams said you should be maxing out other investment plans such as your 401(k) before using permanent life insurance as an investment tool. Life insurance is not a replacement for retirement plans like a 401(k) or IRA account.
If you don't have access to a qualified plan like an employer-sponsored retirement account, permanent life insurance is a good tool to save for retirement.
Williams says you should have a reason to buy life insurance, because you're paying for it. In other words, your financial situation should dictate your need for life insurance.
Things to consider before purchasing life insurance as an investment
Buying life insurance alone without a big picture outlook of your financial plan is not wise because your life insurance needs change as you age. You'll need to consider children, marriage, divorce, retirement, and caring for aging parents.
Have you developed a short-term and long-term budget and financial plan? Have you maximized your 401(k) and IRA options? Have you spoken to a financial advisor and accountant about the tax implications? Did you talk to an estate attorney about how that impacts your estate planning?
Do you understand the difference between term life and permanent life insurance and their different products? Whole life, universal life, and variable life are actually types of permanent life insurance. Other permanent life insurance policies are a variation of these three products.
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Resources for financial planning and investing
The goal is to make the best decisions for you based on your financial goals and budget. To maximize the benefits of life insurance, it's wise to include a financial advisor, accountant, and estates attorney in your decision-making process to ensure you have proper coverage that adapts as your life changes.
If cost is a concern, below are some resources to get started at no cost to you.
- Most banks and credit unions have financial planning services that are free for customers.
- The FDIC has free resources for financial literacy and money management through its Money Smart program that teaches you how to save and invest.
- Your community college or state university may offer free personal finance courses, like the ones offered at the University of Illinois at Champaign-Urbana, Duke University, Purdue University, and Missouri State University.
- CashCourse is available to college students whose universities participate in the Higher Education Financial Wellness Alliance (HEFWA).
- Consider a robo-advisor like Fidelity Go that has no account minimums and low fees.