Life Insurance: Responsible Investment or Waste of Money?

I didn’t understand anything about life insurance until I was in my late twenties. I’d just started a small blog with a friend (you wouldn’t have heard of it), and it was unclear how many people were reading it. Until one day, when a shocking email arrived in our inbox. A company wanted to give us money to recommend a product.

The product was life insurance.

Jess (that’s Piggy to the uninitiated) and I regarded this offer with the confused-yet-intrigued energy of hungry fish watching a worm wriggle on a hook. Obviously we hadn’t had the audacity to make a preemptive affiliate marketing policy. Life insurance sounded like the kind of thing responsible adults should have, right? And it would be cool to offset the cost of running the site, wouldn’t it? We agreed to take a few days and devote our shower thoughts to the idea.

Like many a wise rainbow trout, we decided against the hook. No matter who you are, easy money is always a fat and juicy temptation. But we agreed we’d rather run the blog at a loss than sell random crap to our readers. Happy with this decision, we sat down to our inbox to find two more unsolicited affiliate offers.

These products were also life insurance.

In the years since, they’ve never stopped coming. We get a new one at least once a month. Now, we have the experience to understand why life insurance companies are so eager to pay bloggers to rep their stuff. Today, we’ll permanently burn that bridge by explaining how it works—and why we think most life insurance isn’t worth it for the majority of our readers.

What is life insurance?

Life insurance is kind of a misnomer.

Think about it. The only thing that is guaranteed in life is its end. Nobody’s taking a bet against that.

This whole life insurance episode is super applicable.

It’s much more accurate to think of it as an emergency salary replacement for your heirs. If you are the breadwinner for a family, and you pass away (and thus cannot work), life insurance pays your beneficiaries the money you would’ve earned if you hadn’t died.

The amount paid varies greatly. Classic advice tells policyholders to insure ten years of income. A regular person might get between $250K and $1M dollars in coverage. As with all things, the wealthy can have quite a bit more.

Term life insurance vs. whole life insurance

There are two major categories of life insurance: term life insurance and whole life insurance. And they’re surprisingly different!

How does term life insurance work?

Term life insurance insures you for a specific, limited amount of time. You pay a relatively small amount of money to cover something like ten or twenty years. If you die during that period, your heirs are paid out a much larger amount. If you don’t, the insurance company keeps all the money you paid them as profit.

Life insurance companies make money because 99% of all policyholders don’t die during their policy term. And no, that’s not our lazy hyperbole—it’s the actual statistic. Mostly because, as Genie says in the direct-to-video classic Aladdin 2: The Return of Jafar: “You’d be surprised what you can live through.”

… Now, I know this is a tangent, but I’ve always been so disappointed in the low-effort book number “You’re Only Second Rate.” It’s a genie-on-genie diss track, for chrissakes! It deserves to be a bop! Instead, we get lines like “my thumb is number one on every list.” Sir, who is making lists of the world’s most powerful thumbs?! Sigh… If someone at Disney would like to hire me to elevate this to the “My Dick / Your Dick” level it deserves, please reach out. My freelance rates for rhyming hatefulness are insanely affordable.

You WILL hire me to write kid-friendly diss tracks and/or life insurance articles!

How does whole life insurance work?

Whole life insurance is part insurance, part investment. You pay the insurance company a premium, and they invest that money for you so that it grows in value. When you die, all that money goes to your heirs—minus whatever fees and commissions they feel like deducting.

Similar to a retirement account, most whole life insurance plans allow you to borrow against yourself. Uniquely, the IRS doesn’t tax it as income. So that’s kinda neat.

Unlike term life insurance, whole life insurance is a permanent policy. It’s yours as long as you keep up with your premium payments. (Which could be hard, because it’s dramatically more expensive than term life.) To offset this, insurance companies usually offer whole life plans at a fixed premium. It’s an incentive to sign up earlier in life, when your rates would be low and you could hypothetically benefit from inflation throughout your long lifetime. With both term and whole life, plans are much cheaper for the young and healthy.

Which is better?

If you’re wondering which of these is better, there isn’t a clear winner. The two products are designed to meet different needs. So it depends on what you, the potential customer, want out of it.

Term life insurance’s main advantage is its affordability. At time of writing, an average plan is about $26 per month. The drawback is that you don’t get that money back when the term expires and you’re still sucking air.

In contrast, the main advantage of whole life insurance is that it builds value. As long as you keep up with your premium payments, your heirs will get something. But the main disadvantage of whole life insurance is its cost.

To put cost into perspective, let’s say I wanted half a million dollars in coverage. You know—to keep my dogs living in the indolent lifestyle to which they’ve gown accustomed! If I wanted a 20-year term life plan, I’d pay bang-on average at $25 a month. But if I wanted the same coverage in a whole life plan, I’d have to pay $500 a month. Good god, that buys a lotta kibble!

If you’re asking for my opinion, I think whole life is teeechnically the better investment. But term life is way more likely to actually be useful to our readers. If you have dependents, term life can fill a crucial gap in your family’s financial safety net.

Important questions to answer

If you’re having trouble discerning whether life insurance is right for you, here are some questions that will guide you.

  • Do you have dependents? The purpose of life insurance is to replace a deceased person’s salary to give their heirs some lifestyle continuity. If you’re a single person with no dependents, there’s no point to life insurance.
  • Do your dependents rely on your income? If you have a partner, are they abled and capable of income-generating work? If you have children, are they toddlers—or off in college? Importantly, the question isn’t “would it be nice for them to have money when you die?” Obviously, more money is always nice. Rather, is it essential to their continued survival? Especially if you consider…
  • If you died, what other inheritances would you leave behind? You might be surprised to realize how much goes into your estate. Do you have cash in the bank? An emergency fund? A 401(k)? A house? Investments? A pension? Valuables like jewelry, artwork, furniture? All of these will pass along to your designated beneficiaries. Statistically, even poorer-than-average Americans typically leave an estate large enough to cover their own funeral costs.
  • Do you have solid contingency plans for your dependents? If the worst happened to my brother- and sister-in-law, Aunt Wauwen would step in to provide for their children. I’m financially stable enough to support two kids without help from a life insurance payout. Obviously it’s not ideal to rely on others—but it’s perfectly acceptable when you’re planning for highly unlikely worst-case scenarios.
  • Are you likely to die doing something that isn’t covered? Right now, some of the leading causes of death for young Americans wouldn’t result in an easy life insurance payout. Suicide is one. Drug overdose is another. It varies from policy to policy, but your heirs will likely have to fight a challenge from the insurance company if you died doing something dangerous.
  • Can other forms of insurance or settlements cover you? Another leading cause of death among the relatively young is auto accidents. If someone else strikes you with their car, the at-fault driver and their insurance company are on the hook for a wrongful death settlement. In that sense, you are already “covered” without life insurance.
  • Is your employer offsetting the cost of life insurance? Although I know it was statistically a poor decision, I kept an employee-sponsored plan I really didn’t need. Rejecting something that cost $1.12 out of my paycheck felt like I was daring the universe to pelt me with lightning bolts and/or meteorites.

If you are a single parent to a young child, or the sole caregiver for a disabled family member, and you don’t have the means to begin saving or investing, and you have access to an employer-subsidized life insurance policy… maybe it’s not a bad idea! You’d have to run the numbers as they pertain to your risk tolerance, your specific policy, and your personal budget. If you’re on the fence, it may be worth it to talk to a financial advisor. (Keep in mind, we are uncredentialed rank amateurs!)

Still, we think the majority of our readers don’t need life insurance. Let’s talk about why.

Why we think most of our readers don’t need life insurance

Fundamentally, I view term life insurance as a gamble. A tiny number of people hit the “jackpot.” Their heirs get a big chunk of life-changing money when their need is most dire. But most people “lose” because they spend far more money buying the service than the service pays out to them. (Obviously! If that weren’t the case, every life insurance company would go out of business.) Now, the biggest winners and losers in this gamble have riveting, emotionally compelling stories. But remember: you are statistically many times more likely to be one of the losers. I’d rather make plans to provide for my heirs that don’t require me to play this kind of game.

The reason you probably wouldn’t benefit from whole life insurance is even simpler: you probably can’t afford it! Whole life insurance can be a great way for people with a multi-million dollar estate to offset estate taxes. But most of our readers don’t have that kind of money. We generally serve the “I brought home all the stale bagels left over from the catered work meeting” crowd.

In either instance, life insurance plans are less flexible and valuable than cold, hard cash. (Huh. Cash is liquid, yet also hard… ponder the mysteries of the universe!)

We came to a very similar conclusion in our article on pet insurance. Yes, you can find people who say “My insurance payout saved me $20,000 and little Muffin’s life!” Bully for Muffin! But the average person would be better off setting money aside into a cash emergency fund rather than paying premiums to an insurance company. Cash can be used for any life emergency, whether it’s related to your pet or your health or your home. And you don’t have to go through middle men, nor file claims, nor fight challenges to use it.

Why life insurance companies love to pay bloggers

I told you up top that life insurance companies love to use bloggers to help sell their products. Let’s talk about why.

Salespeople live by the aphorism “facts tell but stories sell.” Humans are social animals. Through the magic of mirror neurons, stories allow us to live someone else’s experience secondhand as powerfully as if it happened to us. Because stories are so much more impactful than facts, they can be used to manipulate us. Scary, bizarre, joyful, and heartstring-tugging tales beg to be repeated and embellished, creating false expectations that extraordinary events are likely to happen to us.

Logic isn’t the reason most people buy life insurance. Instead, most people buy life insurance after hearing dramatic personal stories of people who had—or didn’t have—life insurance when they needed it.

A comment I expect to get on this article goes something like this:

Hard disagree on this one, ladies! My dad died young, and his whole life insurance policy was the only thing that allowed my mom to keep the house. We would’ve been homeless without it!

To which I say: that’s a compelling story, all right! But what would’ve happened if our hypothetical departed dad had put all those life insurance premium payments into extra mortgage payments? Or savings? Or a retirement account? Those benefits wouldn’t require a death in the family to manifest greater stability for all. But we don’t talk about them, because the story isn’t as good.

Now that the life insurance companies have left…

Ideally, we want our readers to make logical decisions with their money. If you’re going to spend money emotionally, at least let it be with your emotions, not the unfounded fears placed there by people trying to sell you something.

Granted, we’re two know-nothing dimwits on the internet. So maybe you shouldn’t listen to us! But we’re also two truth-spewing shieldmaidens willing to burn the bridge that leads to Lucrative Sponsored Post Town forever with an article like this, because we believe you deserve truth unclouded by profit. So at least you know we’re honest dimwits!

What exactly arer you here for?
I must see with eyes unclouded by hate.

So that’s our honest take on life insurance. Hopefully it’s a relief to know that it’s one less thing you “should” have. Take the money you would’ve spent on life insurance and put it into paying off debt or saving for the future instead. Oh, and buy yourself an apple cider donut. For your health.

Today’s post was chosen by our Patreon donors. They give us the security to write whatever we want, even if it’s gonna piss off potential sponsors. If you appreciate our honesty and want to join this effort, come on down to Bitch Nation on Patreon!

6 thoughts to “Life Insurance: Responsible Investment or Waste of Money?”

  1. My first husband was killed crossing the road. I was a stay at home mother with a one year old and a three year old. The term life policy he took out was a great help.

    I did eventually receive a wrongful death settlement, but it was for $250,000. My attorney got a third. ( Had we gone to trial, he would have gotten more.). I didn’t see a penny of that settlement for seven years. I was grateful my husband had a policy.

  2. This is the weirdest post. I’ve never seen anyone say whole life is a good product except for people who need trust find level ways of passing on money. Life insurance should be term. You should have it if you have dependents and they’d need it when you die. Investments should be separate from life insurance unless you have high enough wealth that it’s worth hiring a tax lawyer.

  3. This article was helpful! I always assumed life insurance policies were a scam. My friend recently had a medical issue that scared her. She ended up taking out a term life insurance policy, but she said that she had the option to roll it over into a whole life insurance policy. Her life is different than mine. So while that might be the right move for her, I think that I’ll stick with the advice “But the average person would be better off setting money aside into a cash emergency fund rather than paying premiums to an insurance company.”

  4. when we got a mortgage we got term life insurance policies just for the amount of the mortgage. The idea was that the surviving spouse could pay off the house and leave/sell if desired or needed but otherwise a house payment would no longer be a worry. HOWEVER. We have since *paid off the mortgage* and spouse still thinks we should be paying the damn term and whereas I’m ready to let it lapse. It’s cheap but I’m ready to end that especially since we have umbrella and that is much more expensive.

  5. Usually I love your guys advice but this seems strange to me. Insurance is to protect you against things that you can’t pay for out of pocket, it’s not an investment. It’s a good thing if you don’t make full use of your health insurance by not needing medical emergencies. Losing money by not dying on a cheap life insurance policy is a good thing for you and your dependants/spouse. If you are unlucky and die within a few years, there’s no way for you to make up that amount of money after you die like you could after an expensive trip to the vet compared to pet insurance example. And if you get sick you usually can’t sign up later.
    If your spouse dies, its very stressful. You don’t want the added stress of needing to make changes because now you can’t afford the house on your own and you can’t afford the things you used to do to destress.
    Going by the logic of whole compared to term, i think it would make more sense to have term to protect you in the short term and invest whatever the premium for whole life is so that when the term expires you would also be covered

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