How Life Insurance Works
Understanding Life Insurance
Life insurance pays a death benefit to your beneficiaries when you pass away, in exchange for premiums paid while you’re alive. The two main types work very differently.
Term Life Insurance Covers a fixed period — commonly 10, 20, or 30 years. Premiums are lower, and coverage ends when the term expires unless renewed or converted.
Whole Life Insurance Covers your entire lifetime and builds cash value over time that you can borrow against. Premiums are significantly higher than term policies.
How much coverage is typically considered? A common industry rule of thumb is 10–15 times annual income, then adjusted for outstanding debt (mortgage, loans), number of dependents, and future costs like college tuition. This is a starting point, not a fixed formula — actual needs vary by household.
Common triggers for reviewing coverage: having a child, buying a home, marriage, starting a business, or a significant change in income.
Frequently Asked Questions (FAQ)
Q: Is term or whole life insurance better?
A: Neither is universally “better” — term is lower-cost and time-limited, useful for covering a specific period like a mortgage or child-rearing years. Whole life is permanent and includes a savings component, at a higher cost.
Q: Do I need life insurance if I don’t have kids?
A: It depends on your debts, income replacement needs for a spouse or partner, and final expenses. It’s less commonly a priority for single people with no dependents, but not irrelevant.
Next step: Coverage needs are personal — a quick conversation can help translate these general guidelines into a number that fits your situation.