Yes, replace the chain when worn. Your LBS can check it or use the rule above. Either way, it's cheaper to replace the chain compared to waiting and replacing the chain, freewheel, and chainrings.
I replace my chain once a year. I commute all year and the grime, rain, salt, and dirt play havoc.
I have had to replace my freewheel and my center chainring because I waited too long. It starts to get expensive!