If you’ve ever wondered whether you truly need life insurance, you’re not alone. As with all insurance, you hope you never need it—but when you need it, you hope to have it.

That’s because life insurance is essential to a family’s financial security and peace of mind.

Still not sure life insurance is for you? You might want to consider these known and lesser-known facts on the subject.

Who Needs Life Insurance?

If a spouse, children, or even a parent depends on your earned income, you need life insurance—unless you have assets sufficient to provide for dependents should your income cease.

Single-income families should also consider insuring the stay-at-home parent who cares for children and manages the household. This work has monetary value that would need to be replaced.

Life insurance is particularly critical in early adulthood when expenses are high and savings low.

Coverage needs typically decline as retirement approaches, at which point many people have paid off their mortgage, have no children at home, and can live off accumulated savings.

The Term or Perm Debate

There are two basic types of life insurance: term life and permanent life.

While term insurance is adequate for most people, permanent insurance can be advisable for some individuals.

Here’s the difference between the two.

Term life insurance is most affordable because it’s temporary and has no cash value.

With term life, you pay a fixed premium for a certain term—usually 10, 20, or 30 years. If you die during this time, beneficiaries receive the payout income tax free.

If you live through the term—and 99% of people do, according to Penn State University—coverage ends and no one receives any money. In this case, the policy has served its purpose, protecting loved ones during critical years.

Term life gives you what you pay for—pure insurance, no more, no less. You can cancel, renew, or extend your coverage at any time, and there are no hidden costs or fees.

Permanent life insurance comes in many forms—whole life, universal life, and more—and combines a death benefit with a savings or investment component called cash value.

Most permanent life insurance policies aren’t actually permanent. They expire when the policyholder turns 95 to 100, but coverage can be extended up to age 121.

With permanent insurance, you pay the same premium throughout your life. Accumulated cash value can be used as collateral for loans. This is similar to using margin to borrow money against stocks, or cash out refinances on a home or rental property.

Being insured until the end of life can potentially provide some estate planning benefits. Upon death, there’s no need to liquidate securities or real assets to pay estate taxes, funeral expenses, and the like.

Buy Term and Invest the Difference

At Vista, we believe life insurance should be purchased primarily as insurance, not for investment.

In our view, investment options within permanent life plans are limited, expensive, and lack transparency.

Consider these facts:

  • Permanent life insurance investments are funded with after-tax dollars. Upon withdrawal, proceeds are taxed at ordinary income tax rates, exposing these dollars to higher rates had they been invested outside the insurance policy in an after-tax or “taxable” investment account.
  • And a little-known clincher: When a permanent life insurance policyholder dies, cash value goes back to the insurance company, not to beneficiaries.

Depending on your income, tax bracket, and investments, permanent insurance can make sense. But for most investors, other investments provide a greater tax benefit.

Because whole life premiums can be 5 to 15 times more expensive than a term policy with the same death benefit, we recommend people invest the difference between the cost of permanent and term insurance.

You’ll most likely end up with more money, and your family will keep the accumulated cash after you pass.

A Final Word

Every family is different. Vista can help evaluate your situation and find the best possible insurance solution for you.

Your family will thank you—and you’ll no doubt sleep better knowing your loved ones are protected.