Life insurance does one thing: it replaces your income when you die so the people who depend on you aren't financially devastated. That's it. Everything else is details.
Term Life Insurance (What Most People Need)
- How it works: You pay a fixed premium for 10, 20, or 30 years. If you die during the term, your beneficiaries receive the death benefit. If you outlive the term, coverage ends.
- Cost: $20-$50/month for $500K-$1M (healthy 30-40 year old)
- Best for: Income replacement during your working years, mortgage protection, covering kids through college
- Choose term when: You want maximum coverage for the lowest cost
Whole Life Insurance
- How it works: Covers your entire life. Builds cash value you can borrow against. Premium never changes.
- Cost: 5-15x more than term for the same death benefit
- Best for: Estate planning, leaving a guaranteed inheritance, wealthy individuals who've maxed other tax-advantaged accounts
- Choose whole life when: You need permanent coverage AND have maxed out 401k, IRA, and other investments first
How Much Do You Need?
Quick Method: 10-15x Your Income
If you earn $80,000: get $800,000-$1,200,000 in coverage.
Precise Method: DIME
- D — Debt: Total all debts (mortgage, car loans, student loans, credit cards)
- I — Income: Years of income to replace × annual income (typically 10-15 years)
- M — Mortgage: Remaining mortgage balance (if not included in Debt)
- E — Education: College costs for each child ($100K-$250K per child)
- Subtract: Existing savings, investments, and any existing life insurance
Which Term Length?
- 10-year term: Cheapest. Good if you're close to retirement or kids are nearly grown.
- 20-year term: The sweet spot for most families. Covers kids through college.
- 30-year term: Best if you have young children or a new mortgage. Costs more but covers your longest obligations.
Real Cost Examples (Healthy Non-Smoker)
- $500K, 20-year term, age 30: ~$22/month
- $500K, 20-year term, age 35: ~$28/month
- $500K, 20-year term, age 40: ~$38/month
- $1M, 20-year term, age 35: ~$45/month
- $1M, 20-year term, age 40: ~$62/month
Common Mistakes
- Buying only through your employer: Group life is convenient but usually insufficient (1-2x salary) and you lose it if you leave your job
- Buying whole life when you need term: A $500K whole life policy at age 35 costs $400-$600/month vs. $28/month for term. Buy term, invest the difference.
- Waiting too long: Every year you wait, premiums increase. A health issue can make you uninsurable.
- Not comparing carriers: Rates vary 20-40% between companies for the same person and coverage
Bottom line: If someone depends on your income, you need life insurance. For most people, a 20-year term policy at 10-15x your income is the right answer. It's affordable ($25-$50/month for most), and an independent agent can compare multiple carriers to find the best rate for your health profile.