Should You Opt for Cheap Life Insurance or Invest Instead?
My husband and I recently found ourselves at odds over a crucial financial decision: life insurance. I’d discovered a seemingly affordable plan, but he suggested we simply invest the money instead. To resolve our disagreement, I consulted financial planner Ryan Nelson to determine the best course of action. The question became: is a cheap life insurance policy worthwhile, or is it better to invest the funds elsewhere?
Having Life Insurance Is an Important Decision
After the birth of our child, my husband and I agreed that securing life insurance was a necessity. It’s not just about providing for our child; we also want to support each other in case of a loss of income.
We researched various policies, noting the wide range in annual premiums. My husband, perhaps understandably, started to lean away from the idea of purchasing life insurance altogether, suggesting we invest that money instead.
I, however, remained a strong advocate for life insurance and found a cheap life insurance plan from Corebridge Direct. It offered $250,000 in term coverage for only $13 a month. To settle our debate, I consulted a certified financial planner.
Even the Cheapest Life Insurance is Better than None
Nelson emphasized the potentially devastating consequences of lacking a life insurance policy. “If you experience premature death and you don’t have a life insurance policy, or you’re underinsured, it could wipe out multiple generations of wealth in a family,” shared Nelson. “That’s because your financial trajectory changes overnight. One minute you are accumulating, the next you are just trying to survive.”
He explained that without life insurance, grieving loved ones could face difficult choices, such as downsizing their home, selling assets, or depleting retirement funds. They might need to take on stressful jobs or reduce family activities.
Nelson pointed out the benefits even a cheap plan offers. “Even a cheap life insurance plan that costs a few hundred dollars a year and has a $250,000 payout comes with benefits.” That money could replace lost income, pay off debts, cover mortgages or car payments, or help fund education costs.
Investing Life Insurance Premiums is Risky and Tricky
When asked about my husband’s idea of investing instead of paying premiums, Nelson cautioned against it. “it would take a certain type of discipline, knowledge, and luck to invest that money monthly to build up a nest egg that would pay off the amount as life insurance would if you were to pass away prematurely.”
He continued, “To build a million-dollar nest egg by putting life insurance premiums into a low-cost index fund would take multiple decades. You might not live long enough to see it grow to that size. Life insurance buys you time.”
Without insurance, investments might not reach the same payout as the insurance would if something happens within a few years.
Who Doesn’t Need Cheap Life Insurance?
Nelson noted that those who have achieved financial independence might be able to forgo a cheap policy. “It’s possible to be at a point where it doesn’t make sense financially to have a cheap life insurance policy because you already have other financial resources in place, like meaningful balances in taxable brokerage and savings accounts that have immediate accessibility, as well as a robust retirement account portfolio that would support your loved ones if you passed away.”
He mentioned that net worth is just one factor. Spending habits, stage of life, health, and other variables are also important. A financial advisor can help.
“If a person isn’t sure whether they should get life insurance or rely on their existing assets instead as financial coverage for their loved ones if they pass away, they should seek out the opinion of a trusted professional for an unbiased opinion on their personal financial situation. In these circumstances, I’d strongly recommend they connect with an advisor that does not sell life insurance,” Nelson said.
My husband and I don’t have extensive financial resources and haven’t reached financial independence. Therefore, a cheap life insurance plan is the better choice for us.
Jen Glantz is the founder of Bridesmaid for Hire, a 3x author, the host of You’re Not Getting Any Younger podcast, and the creator of the Pick-Me-Up and Odd Jobs newsletter. Follow her adventures on instagram: @jenglantz.
