At first glance, life insurance may sound like a great deal. In exchange for the premiums you pay, your beneficiaries can receive a tax-free lump sum after you die. The payout can help your loved ones cover living expenses and other costs.

But is life insurance really worth it? Do you actually need the coverage, and are there better ways to leave an inheritance?

» MORE: Life insurance: Policies, types and quotes

When is life insurance worth it?
In general, life insurance is worth it if your death would place a financial burden on other people.

Consider getting coverage if: 

You want to cover your own burial costs. Funerals can be pricey and your loved ones may not have the cash to cover the bill. Life insurance can be used to cover final expenses, such as a burial or cremation.

You want to replace your income. If a child or spouse relies on your salary, you may want life insurance to replace your income after you die. 

You want to cover your debts. Debts rarely pass to other people, but co-signers or co-owners of the debt, as well as spouses in community property states, can be responsible for the outstanding balance. You can use a life insurance policy to cover your debts to help anyone you leave behind pay them off.  

It may also be worth getting life insurance on someone else, especially if their death would have a financial impact on you. For example, if you rely on your spouse's income, you can buy a policy on their life to cover living expenses if they die.   

» MORE: 5 reasons to get life insurance

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Nerdy Tip
If your employer offers free life insurance coverage through work, there’s no reason not to take it. It may not be enough to cover all your needs, but it’s better than nothing (and it’s free).

When is life insurance not worth it?
If your death wouldn’t leave someone in a financial bind, life insurance may not be worth it.

Consider skipping the coverage if:

No one relies on you financially. Your money and attention may be better spent building up your own wealth than buying a life insurance policy, especially if the payout isn’t vital to someone else’s survival.

It’s not in your budget. Only buy coverage if the insurance premiums are within your long-term budget. Permanent policies typically last your entire life, and term life policies can be lengthy — sometimes lasting 30 years. If you miss payments, your policy can lapse, leaving your beneficiaries with nothing. If you don’t think you can afford the ongoing cost, life insurance may not be worth it.

Your primary goal is to build up wealth. Although some permanent life insurance policies offer cash value components, the primary purpose of life insurance is to pay a sum of money to your beneficiaries when you die, not to build an investment. Speak with a fee-only financial advisor about wealth-building opportunities that work best for you and your financial situation.  

» MORE: Compare life insurance quotes

Benefits of life insurance
Guaranteed payout. As long as you pay the premiums and the policy is in force, your beneficiaries will receive a payout when you die. 

Tax-free cash. In general, a life insurance payout is not taxable. Plus, your beneficiaries can use the death benefit for any purpose. 

Direct inheritance. In most cases, the life insurance payout goes directly to the beneficiaries listed on the policy, not to your estate. 

No approval process for loans. You can often borrow against your life insurance policy’s cash value without needing to be approved first. 

Drawbacks of life insurance
Possibility of cancellation. Policies can be canceled if you miss payments, leaving your beneficiaries without a death benefit.

Coverage can cost more than the payout. If you’re older or have a serious health condition, the potential life insurance payout may not be worth the cost. For example, a 70-year-old man may pay $1,302 a year for a $10,000 guaranteed issue life insurance policy, according to Quotacy, a brokerage firm. After eight years, he will have spent more than $10,000 for the coverage. Therefore, if he thinks he’ll live to 78, he may be better off putting his money in a savings account.

Is life insurance worth the cost?
As you can see from the rates below, the younger and healthier you are, the cheaper the coverage. So it may be worth getting a life insurance policy when you’re younger in order to lock in a lower rate. 

Here are average life insurance rates for applicants in excellent health buying $500,000 of coverage. 

Average annual rates for women
Age at purchase

20-year term life

Whole life

Universal life

30

$189

$4,015

$1,793

40

$283

$5,937

$2,645

50

$645

$9,443

$3,867

60

$1,666

$15,943

$6,423

Source: Quotacy. Lowest three rates for each age and policy type averaged. Based on $500,000 of coverage for applicants in excellent health. Rates valid as of Jan. 7, 2023.

Average annual rates for men
Age at purchase

20-year term life

Whole life

Universal life

30

$224

$4,652

$2,144

40

$335

$7,028

$3,098

50

$824

$11,163

$4,601

60

$2,361

$19,150

$7,662

Source: Quotacy. Lowest three rates for each age and policy type averaged. Based on $500,000 of coverage for applicants in excellent health. Rates valid as of Jan. 7, 2023.

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Types of life insurance
There are two main types of life insurance: term life insurance and permanent life insurance. 

Term life insurance lasts for a set period of time, such as 10 or 20 years, and it's the cheapest type of coverage. Term life policies are sufficient for most people. You can select a term length that matches the number of years other people will rely on you financially. 

Permanent life insurance typically lasts your lifetime and includes a cash value component, which you may be able to withdraw or borrow against while you’re still alive.