Is Life Insurance a Waste of Money?

Life Insurance

Have you ever bought something that didn’t do what you wanted it to do? It’s frustrating when something doesn’t work the way it’s supposed to right out of the box.

When reality doesn’t meet our expectations, we get disappointed.

So when I heard a 50-year-old man complaining that he wasted 20 years of his life paying into a term life insurance policy, I couldn’t help but think: Is life insurance a waste of money, or did he just not have the right expectations going into it?

What Good is Life Insurance?

Not everyone needs life insurance. A single 24-year-old with no debt and no family might not want to pay into a life insurance policy – especially if they don’t expect to have a family any time soon. A 30-year-old mother of three who works as a physician would probably want to have a very large life insurance policy in case she passed away before her children were grown.

The point of life insurance is to provide for your loved ones after you pass away. Your goal may be to provide enough to pay off your home and to pay for your childrens’ college if you passed away early.

But here’s what life insurance is not: It is not a free pass to neglect saving for those events. It’s simply irresponsible to treat life insurance as such.

Remember that 50-year-old who grumbled about paying into a life insurance policy for 20 years and claimed that it was a ‘waste’ of his money? He didn’t have any retirement savings, any college savings, or an emergency fund. He was expecting his life insurance to do something it wasn’t designed to do. He didn’t take responsibility for his lack of discipline in saving.

What that person didn’t realize was that his life insurance policy gave him exactly what he paid for all those years: peace of mind.

Every month that you pay your life insurance premium, you’re paying for the peace of mind in knowing that your family would be covered if you passed away. That’s what you’re paying for. You’ll never see the money . . . you have to die before it’s paid out. A simple term life insurance policy gives people exactly what they pay for. Expecting anything more would be unrealistic.

End of rant.

Okay, seriously though. Term life insurance isn’t a waste of money if you set your expectations correctly. That’s like thinking your pickup truck is a waste of money because it doesn’t get 100 miles per gallon. It wasn’t designed to get 100 mpg. It was designed to move you from point A to B. We set ourselves up for disappointment when our expectations are out of sync with reality.

The Next Step: Researching Life Insurance

I strongly encourage you to do some research about term life insurance. Bob at ChristianPF.com talks about the importance of life insurance here. Get the information you need to make the right decisions when it comes to life insurance!

Do you have life insurance? Why or why not? Leave a comment!











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11 Comments
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  1. After extensive research, universal life provides best for my needs. I choose not to buy Long Term Care Insurance as it’s simply too expensive. Universal Life Insurance was an excellent choice…it gives me life insurance but, and most importantly, it allows me to use it should I need it for long term care or in case of terminal illness.

  2. P. S. As to the 50 year old man complaining he’d paid 20 years for nothing…sounds like he didn’t understand how term life insurance is meant to be used. It’s great, for short term, but over the long term, is pretty much a waste of money…unless the heirs collect. I think a lot of mistakes are made because we simply don’t understand. Let’s face it, there’s a LOT screaming for our attention and it’s difficult to know what, how, when to take appropriate action. Be gentle, most are fighting battles the rest know nothing about.
    What offer of help did you give him?

    • I disagree. I think term life insurance is better in ALMOST every circumstance because it is so much cheaper than universal life that if you saved the difference between the 2 policies and invested wisely, you would be in a MUCH better position at the end of the policy.

  3. Nearly everyone needs life insurance. The primary purpose of life insurance is to protect those we love from unexpected financial loss. Even single people need life insurance if they don’t have a pile of cash. It costs a good bit of money to bury anyone, even a young person. Why would we place that burden on someone else?

    Christians, of all people, should be responsible individuals. If others depend on you for financial support or payment of a debt, you need to take care of that responsibility. I have always considered five items of possible need: burial, pay off debt, pay off a mortgage or provide long-term rent money, provide replacement income for a spouse and/or children, and provide funds for schooling. This is on a personal level only. A person in business may need insurance to secure banks, creditors, partners, etc.

    Term insurance is the most inexpensive way of handling this responsibility. Level term insurance of 20 or 30 years is usually available for most people. Universal life and other permanent insurance plans cost more but if properly set up and funded have other advantages, such as the ability to access cash from the policy.

    Why do we buy homeowner insurance, automobile insurance, and insurance on tangible items? Basically there are two reasons: to replace the item and to fulfill our responsiblity to pay our debts. A person can’t be replaced. But his earning power can be replaced, at least for a number of years, by owning life insurance. Why put those you love (or maybe it’s those you say you love) in a desperate financial condition by dying without adequate life insurance?

  4. I’ve been life insuranced licensed for 6 years and a lot of my clients have thanked me for giving them a peace of mind. To bury someone cost money, money most ppl don’t have. You’re guaranteed to die, therefore you need it, not want it but need it. More than that if someone is depending on your income, spouse, kids, etc, when u die they will still need your income life insurance can’t replace you, but it can replace your income, if u purchase a life insurance strategy not a life insurance product.

    • Derrick,

      That is a great point. People should purchase a life insurance strategy that is focused on replacing income, protecting the family, paying off the mortgage, etc.

      All too often people neglect to buy life insurance because they do not think they will die anytime soon. But that is not really the point. The point is, if you died today, where does that leave your family?

      The peace of mind that comes with having some life insurance far outweighs the small price of a term life insurance policy.

  5. I have life insurance because I am a single parent with three children under age 18. If I die tomorrow, I’d rest assured knowing that they’d be taken care of – at least for a few years. I don’t want finances to be an issue for anyone who would step in to raise them. I also feel that I should have a living trust set up as well to spell out exactly how WHO is to care for them.

    I handle employee benefits for my employer, and I’ve seen how ugly things can get when there’s no plan in place for loved ones. Also, it’s very important for people to keep their beneficiary info updated. Nothing is worse than having an ex listed, when the intent was to leave the life insurance money to someone else.

  6. I figure that everyone needs life insurance unless they expect to die alone and unloved.

    I’ve had a couple family members die intestate, and it’s not fun. The beauty of life insurance is that it’s a contract, it does not have to go through probate.

    I know most bloggers promote term insurance and abhor whole life. I agree that term is cheaper, and especially good for a given period, like for SAHM/Ds. One consideration for whole life is if you might die ‘house rich and cash poor’. Liquidity at death is a great reason to have a guaranteed death benefit like whole life. And it doesn’t have to provide income to your beneficiaries; you just might need some money to pay the property taxes for a while. I’ve seen that before.

    Keep an open mind and consider your own situation.

    Thanks!

    • Rob, you are right. The liquidity that life insurance offers is a huge advantage. Life insurance proceeds are typically available much sooner than proceeds from a trust and probate can take up to 18 months in California.

      • Thanks, Jason. Here’s the other situation where insurance would have helped:
        Grandma died owning a valuable oceanfront property. Her husband died years before, she never worked, she had minimal assets when she died. She only had one heir, but even he could not afford the property taxes on the home. It would be like 2 mortgages. A whole life policy might have covered at least a couple years of taxes so they wouldn’t have to sell the home.
        Not a solution for everyone, but don’t tell me you NEVER need permanent insurance.

  7. Our school tuition came with a free life insurance. When I graduated, the company I joined also had it for free. I feel sorry for the 50-year old guy who didn’t save wisely but even if I didn’t have this free insurance, I think I would set aside money for it. Now that you mention short-term and long-term, I will have to check our HR department to the specifics of this. Thanks!

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