Cheap Life Insurance Makes Sense. Here's Why

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  • Spending less money on life insurance won't necessarily mean not getting adequate coverage.
  • While whole life insurance offers more comprehensive coverage than term life insurance, its cost can be prohibitively more expensive.

Sometimes, taking the less expensive route pays off.

If there are people in your life who depend on you financially, then it's important to put a life insurance policy in place. Without one, your loved ones might struggle if you were to pass away unexpectedly.

You might assume that when it comes to life insurance, taking the cheaper way out isn't your best bet, the same way a cheap laptop might wear out after a couple of years while a higher-end one might last for five years or more. But actually, life insurance is one situation where going the less expensive route is probably your better bet.

When cheaper is better

There's a danger in not being able to keep up with your life insurance premiums -- having your policy lapse due to you falling behind. So you're generally better off getting less expensive life insurance you can keep up with, rather than stretching your budget to afford a costlier policy -- even if that more expensive policy offers added coverage.

It's for this reason why so many financial experts recommend getting term life insurance instead of whole life insurance. Term life insurance will only cover you for a preset period of time, and if you don't pass away while your coverage is in place, you won't be paid a benefit.

Whole life insurance, on the other hand, covers you for the rest of your life. And your policy does accumulate a cash value over time. Once that happens, you could have the option to borrow against your policy should the need for money arise. Or, you can even cash out your life insurance policy while you're living. Doing so could mean forgoing your death benefit, but the option is there.

But while whole life insurance might offer more coverage than term life insurance, its cost can be astronomical. As an example, a 30-year-old healthy, non-smoking male would pay about 5.8 times more for a $500,000 whole life policy versus. a $500,000 40-year term life policy, according to Forbes Advisor. That's a major difference.

Don't overpay for life insurance

Buying whole life insurance could put you in a position where you end up falling behind on your premiums and losing your coverage due to affordability issues. And even if you manage to retain your coverage, paying too much for life insurance could make it so you have a hard time covering other bills.

In many cases, the coverage offered by a term life policy will more than suffice. For example, if you put a 30-year term policy into effect when your kids are infants, that's a long enough term to protect them until they reach adulthood.

And if you're worried about giving up the cash value component of a whole life insurance policy, what you can do instead is take the money you aren't spending on premiums and put it into a savings account or a brokerage account. That way, you can accumulate your own pile of cash, and you'll be the one to manage that money -- not your life insurance company.

Our picks for best life insurance companies

Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.

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