Should You Buy Life Insurance or Invest First?

If you were to ask me five years ago, what you should do first; buy life insurance or invest into a Roth IRA, there is no question what my response would have been. Without a doubt it would have been invest into a Roth IRA and not wait to invest. Tax-free money baby! As a young investor myself, I get super excited about the idea of compounding interest, and how much a Roth IRA will grow to be over the next several years. Seriously, it gives me goose bumps just thinking about it.

After orchestrating the Life Insurance Movement where my goal was to bring awareness to all those that don’t have life insurance, that same question came up again:

Should you buy life insurance or should you invest first?

I found myself debating over that exact question again, and guess what happened? I didn’t have the same response. *Shocker!*

But why? Did I fall out of love with the Roth IRA? Nope, not at all. Let’s see what changed.

You Should Never Buy Life Insurance If . . .

First things first. If you are a young and single adult with no dependents, then there’s no point reading after this section. Do not buy life insurance. At least not yet. Buying life insurance might sound like the responsible thing to do, but you have no one to be responsible for; i.e. dependents. The better option is to invest. If you want the same goose bump effect that I have, then open a Roth IRA.

Not sure how to get started? Ben has an awesome post that walks you through how to get your IRA setup in less than 10 minutes.

Is there an exception to this? One exception could be if your parents have loaned you a lot of money, say for school or whatever financial bind that you’re in. In that case you could take out a short term policy to pay them back if something were to happen to you. Is that required? No. Is that a mature and sweet thing for a kid to do? It sure is.

Why did I change my mind?

The big change is when I started thinking about my family and my three young sons. If I was at a point in my life where I could only afford to do one or the other; buy life insurance or invest, and I had a family that was reliant on my income, what makes the most sense? Buying a cheap life insurance policy for $25 a month, or investing that $25 a month into a Roth IRA that will eventually grow to be a very large number?

If something happened to me today, my family would far greater benefit from me buying a life insurance policy than funding my Roth IRA. This might seem like common sense to many, but for me this didn’t sink in until now.

I’m not sure why it took becoming a family of five until I finally figured this out, but now it’s blatantly obvious. Over 1/3 of U.S. families don’t have life insurance so I know it’s still not common place. It’s time to wake up and get insured.

What would you do first, buy life insurance or invest? Share your answer and reasoning in the comments below.

By the way, if you are doing both, paying for life insurance and investing, consider yourself ahead of the curve. 🙂

Jeff Rose is a proud Iraqi combat veteran and certified financial planner. He blogs at Good Financial Cents and Life Insurance By Jeff, but primarily spends his day craving the next time he can eat In-N-Out Burger again.

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