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- Experts agree the best choice for simple and cheap life insurance coverage is term life insurance.
- Term life insurance, unlike permanent life insurance, provides coverage for a fixed amount of time, usually 10, 20, or 30 years.
- Buying a term life insurance policy when you’re young can help lock in an inexpensive rate for the duration of your coverage. It will only increase incrementally each year you age.
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The good news is, it’s probably not as expensive as you think. The average person can expect to pay between $300 to $400 a year — or just $25 to $33 a month — for life insurance, according to insurance-comparison site Policygenius, but it really depends on the amount of coverage you want, how much risk you pose (e.g. the status of your health), and what type of policy you get.
Broadly, there are two types of life insurance: term life insurance and whole life insurance.
Experts usually agree the best choice for simple and cheap coverage is term life insurance. Term life insurance, unlike permanent life insurance, provides coverage for a fixed amount of time, usually 10, 20, or 30 years. Generally, the earlier in life you buy it, the cheaper it is. Life insurance premiums increase incrementally with age, but locking in a low monthly rate now on a term life policy will save you the most money in the long run.
"While it may seem like you’d want insurance to last your whole life, most people are better off buying an affordable term policy and investing their savings separately rather than buying an expensive whole life policy," writes Policygenius.
Whole life policies can be up to six to 10 times as expensive as term life policies and have an investment component. These types of policies are usually beneficial for people with substantial wealth or complicated financial situations who rely on the cash value of their life insurance as part of an estate plan.
Why should I get term life insurance?
Writer Eric Rosenberg purchased a $1 million term life insurance policy when he was 28 years old, before he had children, a family history of cancer, and a decidedly risky hobby of flying planes. He secured a low rate then and now pays $78 a month for his policy. Rosenberg said his only regret is not getting more coverage.
Term life insurance can ultimately act as a stand-in savings cushion and an invaluable protection plan if the breadwinner dies prematurely. From the time the first monthly premium is paid until the last, the beneficiary is entitled to the full amount of coverage if the policyholder dies (this is called the death benefit).
"Ideally, your family’s need for life insurance will end around the time the term expires: Your kids will be on their own, you’ll have paid off your house, and you’ll have plenty of money in savings to serve as a financial safety net," wrote NerdWallet’s Barbara Marquand.
If you’re signed up for group life insurance through work, you only need to supplement that amount with an individual policy. Many companies offer life insurance coverage for employees, but it’s usually a multiple of annual salary and not enough to replace income for a family. The policy is often free and the money is guaranteed, so it’s typically worth taking.
Some employers offer supplemental life insurance to make up the difference, but it’s smart to compare rates with other insurers to find the best option.
Not everyone needs additional life insurance, though. According Policygenius, whether or not you need life insurance boils down to this: Does anyone rely on your income for their financial well-being? That could be children, a spouse, aging parents, or anyone else who could be considered some level of dependent. If someone else relies on your income, then you probably need life insurance.
How much should you be paying for life insurance? Our partner Policygenius can help you figure it out »
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