is one of those topics that feels complicated and slightly morbid. But at its core, the concept is simple: if you die, your family gets money.
The question is: what kind should you buy?
Do You Even Need Life Insurance?
You need life insurance if someone depends on your income. That includes:
- A spouse or partner who relies on your earnings
- Children who need financial support
- Anyone you financially support (aging parents, siblings)
- A business partner who would need to buy out your share
Pro Tip
If no one depends on your income, you probably do not need life insurance. A single person with no dependents can skip it entirely.
The Two Main Types
Insurance
What it is: Coverage for a specific period (10, 20, or 30 years). If you die during the term, your beneficiaries get the payout. If you outlive the term, coverage ends and you get nothing back.
Cost: Very affordable. A healthy 30-year-old can get $500,000 of coverage for $20-30/month.
Best for: Most people. Covers you during the years when people depend on your income.
Insurance
What it is: Coverage for your entire life, with a savings component that builds "cash value" over time.
Cost: 5-15x more expensive than term for the same death benefit.
Best for: Very specific situations (estate planning for wealthy individuals, special needs planning).
Why Term Almost Always Wins
Here is the math that insurance salespeople do not want you to see:
Option A - Term + Invest the Difference:
- $500,000 term policy: $25/month
- Invest the $225/month you save vs. whole life
- After 30 years at 7% return: ~$275,000 in investments
- Total protection: $500,000 death benefit + $275,000 savings
Option B - Whole Life:
- $500,000 whole life policy: $250/month
- After 30 years: ~$150,000 cash value
- Total protection: $500,000 death benefit + $150,000 cash value
Option A leaves you with $125,000+ more.
The whole life "investment" component typically earns 2-4% after fees. You can do much better in a simple .
How Much Coverage Do You Need?
A common rule of thumb: 10-12 times your annual income.
More precise method—add up:
- Years of income replacement needed (until kids are independent)
- Outstanding debts (, car loans)
- Future expenses (college for kids)
- Funeral costs ($10,000-15,000)
Then subtract:
- Existing savings and investments
- Spouse's earning potential
- Social Security survivor benefits
Do This
Use a life insurance calculator to get a more personalized estimate. Most people need between $500,000 and $1,500,000 in coverage.
How Long Should Your Term Be?
Match your term to when your dependents no longer need support:
| Situation | Suggested Term |
|---|---|
| Newborn child | 20-25 years |
| Kids in elementary school | 15-20 years |
| Kids in high school | 10-15 years |
| No kids, just spouse | Until retirement |
Where to Buy Term Life Insurance
Online Brokers (Best for most people):
- Policygenius, Haven Life, Ladder
- Compare multiple companies at once
- No pushy salespeople
Directly from Insurers:
- USAA (military families)
- State Farm, Northwestern Mutual, etc.
Avoid This
Be cautious of insurance agents who push whole life aggressively. They earn much higher commissions on whole life policies—sometimes 50-100% of your first year's premiums. Term commissions are much lower, so some agents steer you away from it.
When Whole Life Might Make Sense
Whole life is not always wrong. It can work for:
- Estate planning for the wealthy — To pay estate taxes without liquidating assets
- Special needs planning — To fund a special needs trust without affecting government benefits
- Guaranteed insurability — If you have a condition that might make you uninsurable later
- Forced savings — If you absolutely cannot save any other way (but a match is still better)
If none of these apply to you, stick with term.
Red Flags to Watch For
- Agent insists you "need" whole life without explaining why
- Pressure to buy immediately without comparing options
- Mixing insurance with investing ("it is like a savings account!")
- Complicated policies you do not fully understand
The Bottom Line
Quick Win
If you have dependents and no life insurance, get quotes for term life insurance this week. A 20-year term policy with 10x your income is a solid starting point. The process takes about 20 minutes online.
For 95% of people, the answer is simple: buy term life insurance and invest the difference. You will end up with more money and better protection.