Life insurance pays a tax-free amount to the people you choose if you pass away. For most families, the point is simple: if your income disappeared, the people who depend on you could keep their home, their routines and their plans.
There are two broad types, and the difference comes down to how long you're covered and what you pay.
Term life insurance
Term insurance covers you for a set period — often 10, 20 or 30 years. If you pass away during that time, your beneficiaries receive the benefit. If the term ends, the coverage either stops or can be renewed, usually at a much higher price.
- Usually the most affordable way to get a large amount of coverage
- Well suited to years when people rely on you most — while children are young or a mortgage is large
- No savings or investment component
Permanent life insurance
Permanent insurance — such as whole life or universal life — is designed to last your whole life, as long as premiums are paid. Some policies build cash value over time.
- Coverage that doesn't expire at a certain age
- Can be useful for long-term needs, such as estate planning or leaving a set amount to family
- Costs significantly more than term coverage for the same benefit amount
Questions that help you decide
- How long will people depend on my income?
- What debts would my family need to pay off — and by when?
- Do I have a need that lasts my whole life, or one that ends?
- What can I comfortably afford every month, for years to come?
- How much coverage do I already have through work, and what happens to it if I leave?
Many families use a mix: term coverage for the busy middle years, sometimes alongside a smaller permanent policy. The right answer depends on your situation — which is exactly what a conversation is for.
This article is general information, not advice. Policy features, eligibility and costs vary by insurer and depend on your age, health and other factors.