Cheap Life Insurance vs. Investing: Which Wins?
My husband and I recently had a disagreement. After having a baby, we agreed life insurance was vital. I found a cheap plan, but he wanted to invest the money instead. To settle our debate, I consulted financial planner Ryan Nelson.
He helped me decide whether it’s worth it.
Why Even Cheap Life Insurance Is a Good Idea
Nelson stressed the potentially devastating consequences of lacking life insurance. “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,” he said.
Without it, surviving family might face tough choices: downsizing, selling assets, using retirement funds, or taking on stressful jobs to generate income, all while cutting back on family activities. Even a modest policy offers benefits, Nelson explained.
With a $250,000 payout, life insurance can replace income, pay debts, cover mortgages, or help with future educational costs for your child.
Investing Instead of Life Insurance: A Risky Move?
Investing the money saved on premiums seems appealing, but 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 said.
He pointed out it would take decades to build a substantial nest egg, adding, “You might not live long enough to see it grow to that size. Life insurance buys you time.”
Life insurance provides immediate financial protection, which an investment account may not match in the event of an early death.
Who Might Not Need Cheap Life Insurance?
Nelson noted that individuals who have already reached financial independence – a personal benchmark – may not need cheap life insurance. They likely have sufficient resources in readily accessible accounts.
It’s about more than net worth; spending habits, life stage, and health matter. A financial advisor can offer personalized advice.
Get Professional Advice
If you’re unsure whether to get life insurance, Nelson recommends seeking advice from an unbiased financial professional, particularly one who doesn’t sell insurance. This gives reassurance and helps you see your financial situation.
My husband and I don’t have a robust financial portfolio. Thus, a cheap life insurance plan is better than nothing.
