Erica and Jordan at the The Worth Project have the goal of sharing their personal finance experience to help readers improve their financial lives. We regularly partner with companies that share that same vision. Some of the links in this post may be from our partners. Here's how we make money.
In September we took a trip back to California to visit family and friends. It had been a full year since we’d been back and a lot has changed.
Specifically, we had a new human with us. This human depended on us for everything. Figuring out if life insurance is worth getting became a pressing topic.
Life insurance is worth getting if someone else is depending on your income. Term life insurance is particularly worth it, compared to whole life, because it provides a tax-free lump sum of money for a financial safety net for your spouse, parents, or child. Term life is worth getting because it is the most affordable type of life insurance.
Deciding if life insurance is a good idea isn’t always so clear.
From my personal experience and need to answer this question, I developed this guide on determining if life insurance is worth it. Read on to to see how much life insurance do you need, how much does it cost, and where to find the lowest cost policies.
How we decided life insurance was worth getting
Our sweet little son Henry was born in March and to say that having him changed things would be an understatement. My home office is now a nursery. Conversations revolve around when he last ate and what cute noises he’s now making. And our monthly budget is dominated by childcare that costs more than our rent.
Life is different but still great.
Having him brought up some tough questions we had talked about in theory, but were now a reality. Things like:
- How do we manage to split household responsibilities equally?
- How do we balance enjoying the things that we like to do with caring for a new baby?
- How do we make sure his future is as secure as we can make it?
The most uncomfortable question was how do we ensure life for him is comfortable should things not go according to plan. And we all know things in life don’t go according to plan.
I’m not going to lie, the conversation about life insurance and estate planning had me wrecked. I don’t like thinking about or talking about unfortunate things in life. Having to be an adult and think about these things had me very far outside my comfort zone.
During our Santa Barbara visit, we had a few weeks to ensure we had everything in order. High on our list of priorities: getting an updated life insurance policy. I knew a bit about life insurance, but this is a full rundown of the most important things I learned along the way.
Is life insurance worth getting for you?
For us, it was pretty obvious. We started taking life insurance seriously when we bought a house and had a mortgage.
Then we had Henry and knew that we wanted more insurance to make sure he was taken care of. But there are actually a lot of different reasons why getting life insurance may be worth it for you. You may want life insurance if you have:
- someone currently depending on your income, like a child or a non-working spouse;
- debt (like a mortgage) that you’d want to be paid off;
- a parent or other family member who will depend on you to care for them;
- to cover your own funeral costs but don’t have any other savings to do so.
Jordan and I are a dual income household with a mortgage and a baby (plus a really cute dog). Life insurance is right for us.
Do you need life insurance at 25?
Deciding if life insurance is worth it isn’t an age thing. Life insurance isn’t for you, it is for who you leave behind. Therefore, having a family is the milestone where you need to decide if life insurance is right for you.
You may need life insurance at 25 if someone else is depending on your income. Then you need life insurance in case you die and can’t provide for them.
Your spouse or your parents could benefit from the money to help pay off debt. A family doesn’t only mean supporting your children.
Here are some common examples:
- You DO NEED life insurance if you’re 25 with a wife who is staying home with a newborn.
- You DO NOT need life insurance if you’re single and 28.
- You DO NOT need life insurance if you’re 26, married, and both you and your spouse work. But you may want to start thinking about it anyway.
For the last bullet, read below on why getting it when you’re younger may save you money in the long run.
What kind of life insurance do you need?
Once you decide that life insurance is worth getting, you get into a whole world of options. Your choices break down to two main types: term and permanent.
Term Life Insurance
This is the most straightforward option. You take out a policy for a set term and pay a premium during that time. Most terms are 10-30 years. This is a popular option because it’s significantly cheaper than permanent life insurance and easy to understand.
Permanent Life Insurance
This includes Whole Life, Variable Life, Universal Life, and other options. These policies don’t end after a certain amount of time. They cover you for your entire life, so there is a guaranteed benefit at the end. This can be peace of mind for someone who has a dependent child that they know will need assistance for their entire life.
However, these policies are complex, expensive, and though they’re often sold as being a good retirement investment opportunity, they don’t always work out that way. The fees and return on your investment aren’t usually transparent. If you decide to cancel your policy and take out the money you put in, you may have to pay a hefty surrender charge.
How much life insurance do you need?
Here’s where Jordan and I got a little hung up. We knew we wanted term insurance, but we didn’t really know how much we needed. We could have turned to an insurance salesman or a fee-only insurance consultant to help us run the numbers, but we really enjoy the DIY approach so we dug in.
After a lot of reading, we basically were left with this: after considering debt, savings, college for Henry, and costs of additional childcare, what level of life insurance makes us comfortable?
We came up with an amount of insurance that would cover our mortgage, Henry’s education, and a bit extra. That felt right for us.
Just a note: I’m an advocate of always understanding how someone is being paid. Commissions are a huge incentive in the insurance sales pay structure. That in itself isn’t necessarily bad, but I think it’s always best to do your own research and figure out what you want, so you’re not sold more insurance than you may need.
Can you just get insurance through your company?
You sure can. Most companies will give you a minimal amount of insurance for free and give you the option to purchase additional insurance at a reduced cost. For some people, this may be enough.
But something to consider is what happens when you leave that employer? You’ll have to get life insurance another way. The younger you are when you purchase a policy, the cheaper that policy will be. If you find yourself needing to get a new policy when you’re 50, you might struggle to find coverage and you’ll pay a lot more for your monthly premium than you would have if you’d gotten it earlier.
What should you look for in an insurance company?
Not all insurance companies are created equal. Sure, like any company you’re considering working with it should be easy to reach their customer service and what you’re buying should be easy to understand.
For us, one of the most important things to look for was financial stability of the company. We didn’t want to entrust this protection to a company that may or may not be around in 30 years (the length of the term coverage we purchased).
Insurance companies are rated by different ratings agencies: AM Best, Moody’s, Fitch, and S&P. Finding an insurance company with a good rating is important. You can look up the ratings individually or ask what the Comdex score is. The Comdex score is a compilation of scores from two or more of the ratings agencies.
- Ladder Life Insurance Review: Our Honest Experience
- How Much Does a Baby Cost in the First Year? $24,032
What happens if your insurance company goes out of business?
I might be a little paranoid, but this is the first question that I ask when deciding to put my faith in pretty much any company. If your insurance company goes through bankruptcy, each state has a guarantee association that will cover the claims, up to a certain amount. You can find out how much your state will guarantee, by using this search tool.
Where to buy life insurance?
There is an overwhelming number of options for buying life insurance.
If you prefer to work directly with a person who is selling insurance, there are independent agents and captive agents. Independent agents work with a number of different companies and can get life insurance policy quotes from these companies. A captive agent works as an employee of one company and will only quote you policies from that company. Almost all of the agents selling insurance work on commission.
Another option is to hire a fee-only insurance consultant, who can analyze policy options and help negotiate the policy that you do end up purchasing. These consultants do come with a cost and are probably best suited to people that are purchasing more complex permanent policies.
Direct to consumer life insurance companies
Lastly, there has been a number of direct to consumer life insurance companies cropping up. With these companies you don’t work with an agent — you do the full application online. You may still need an in-person lab exam to complete your application, but most companies will send someone to your home to take the blood samples.
The idea with this direct to consumer model is that they make it less painful to get covered.
Because Jordan and I had done the research and knew exactly what we wanted, we went with a direct to consumer insurance company. We appreciated the ease, transparency, and cost of what we selected. After careful research, we selected Ladder Life Insurance.
What I love about Ladder:
- If things aren’t easy and fast, I probably won’t do them. Applying for and finalizing this insurance policy was easy. Managing my account online is a snap as well. Once we created our family trust, I was able to log in and update the beneficiary quickly.
- I don’t like to question motives. While I have no doubt that insurance brokers have nothing but my best interest in mind, I struggle with the idea of paying commission based on the amount of coverage I choose. I don’t want to feel pressured into buying more than I need. Because no one at Ladder receives a commission (not even their customer service team), I never felt pressured to buy more insurance.
- The price was competitive. We looked at a few different options for life insurance and while I don’t specifically remember if Ladder was the lowest, the price we were offered was very competitive.
- We have the option to change coverage. The bulk of our life insurance, if there was a payout, would cover paying off our mortgage and paying for Henry’s college. As we’re hoping to pay off our mortgage early and are saving each month for Henry’s tuition, I don’t know if we’ll need to carry such a large insurance policy for the next 25 years. I like that Ladder provides the flexibility to decrease our coverage in the future if we find ourselves in a different financial situation.
Though I absolutely hated thinking about this topic, knowing that we have enough insurance takes a weight off my shoulder that I didn’t realize was there.
Check-out Ladder Life Insurance to see if the price and coverage works for you. Use this guide to help you make an informed decision.
Erica Gellerman is a CPA, MBA, personal finance writer, and founder of The Worth Project: personal finance and family travel. website. Her work has been featured on Forbes, Money, Business Insider, The Everygirl, The Everymom, and Lifehacker. When she's not writing about personal finance you can find Erica exploring Europe from her temporary home base in London.
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