Is Life Insurance Worth It? What You Should Consider in 2025

Life insurance isn’t for everyone. Even if life insurance is worth it for you, you may get more out of certain types of life insurance than others depending on who you are and who you want to insure.

Let’s look at when life insurance is worth it and other considerations that impact if you need coverage.

When life insurance is worth it

Life insurance can be worth it if you have people in your life who will benefit from a death benefit. This includes spouses, children, and any other dependents.

Here are other cases in which life insurance may be worth it:

• You have dependents who rely on your income 
• You have significant debts or financial liabilities
• You are a homeowner with mortgages 
• You are a business owner wanting to ensure business continuity 
• You want to leave an inheritance for your next of kin
• You are a caregiver for dependents with special needs or elderly parents
• You are a high-net-worth individual with estate planning needs 

When life insurance is not worth it

On the other hand, there are instances when life insurance isn’t necessary, such as the following situations:

• You are single with no dependents 
• You are a retiree with enough savings 
• You have minimal debts 
• You have significant assets to cover debts and final expenses 
• You have adequate insurance through work 

What are the reasons to have life insurance? 

Protects your loved ones 

“If you don’t make it home and someone relies on your income to live, you need life insurance,” says Mark Williams, CEO of Brokers International, an insurance marketing organization. Life insurance ensures that people who rely on are financially protected even after your death. Your death benefit (the proceeds of your policy) can replace your income, pay for household services, or keep your business running in the event of your passing. 

Covers debts and final expenses

If you share a mortgage or credit card debt with someone else, your coverage kicks in to cover those outstanding obligations if you pass away. Your life insurance policy can also pay for end-of-life expenses, like your funeral ceremony or medical bills, giving your loved ones the space to grieve your passing properly. 

Potential to accumulate wealth 

A permanent life insurance policy offers a cash value component. Depending on your permanent policy type, this feature grows your policy from interest earnings or investment gains.

You can withdraw or borrow from your cash value to fund financial goals such as paying a down payment on a home or increasing your retirement income. You can also use it to increase your death benefit or gift the proceeds to your heirs. 

While a life insurance policy can play a part in your wealth accumulation, it’s important to note that you shouldn’t take out a life insurance policy for the sole purpose of building wealth during your lifetime. Returns from life insurance investments generally fall behind returns from traditional investment avenues.

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Factors that impact your life insurance needs

To find the best life insurance for your needs, you’ll have to determine what those needs are. You’ll want to consider the following factors when assessing your needs.

Your budget

Your budget guides the amount of insurance you can get, as you shouldn’t buy more coverage than you can afford.

A term life insurance policy covers a limited number of years, so it costs significantly less than a permanent policy. Term life insurance policies are often used to cover people with temporary financial needs. For example, term life insurance policies are great for people who are paying off a mortgage or want to cover their working years.

If you have a more flexible budget, a permanent policy can be worthwhile, covering you until your death, which essentially guarantees your death benefit. These policies often come with a cash value component, which is a portion of your premium set aside for the policyholder to use during their lifetime, either for investing, borrowing, or to add to their death benefit.

You can find our guide to affordable life insurance.

Type of coverage

As mentioned, the most significant perk of a term life policy is its affordable price for a large amount of coverage. Policyholders also appreciate the simplicity of the policy as it doesn’t have a cash value aspect and requires little oversight. It’s worth mentioning that most term policies don’t pay out, meaning you’ll likely not get a return on your investment. 

On the other hand, permanent life insurance is the way to go if you want lifelong coverage, particularly if you have long-term dependents. It’s more expensive than term life because a portion of your premium goes towards your cash value. However, unlike term life, the policy guarantees a death benefit payout (as long as you make your premium payments) and offers the potential to build wealth. 

There are various types of permanent life insurance policies. The main ones are whole life, universal life, and variable life insurance. Other policies are variations of the three. 

Amount of coverage

After deciding on the type of policy to purchase, decide how much coverage you need. Consider the “DIME” method when calculating your coverage needs: the sum of your debt and final expenses, income, mortgage, and children’s educational expenses minus any current savings or life insurance policies you already carry. 

Online calculators exist to calculate this figure. However, speaking to a financial advisor or an independent insurance agent can give you a more accurate estimate of your needs. 

Age and health

Your age and health affect premiums and policy availability. Younger and healthier individuals often qualify for better rates and terms. However, younger individuals may not have the financial capacity to afford permanent life insurance. 

If you’re a young shopper with a limited budget, you may start with a term life policy with a term conversion rider. This converts your policy to whole life insurance without going through the underwriting process again, allowing you to switch to permanent life insurance when your income increases. 

Older individuals or those with health issues may be limited in the type of policies they can get. If this is you, consider non-traditional policies like no medical exam life insurance. These policies allow those with elevated risk factors to qualify for coverage by providing a medical exam exemption. 

However, no medical exam insurances tend to provide limited coverage and higher premiums than the standard policy. 

Are life insurance investments worth it?

The goal is to make the best decisions based on your financial goals and budget. To maximize life insurance benefits, it’s wise to include a financial advisor, accountant, and estate 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.

1. Most banks and credit unions have financial planning services that are free for customers. 
2. The FDIC has free financial literacy and management resources through its Money Smart program that teaches you how to save and invest.
3. 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.
4. CashCourse is available to college students whose universities participate in the Higher Education Financial Wellness Alliance (HEFWA).
5. Consider a robo-advisor like Fidelity Go that has no account minimums and low fees.

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