Choose the right life insurance by understanding term versus whole life, calculating your coverage needs, comparing premiums, selecting riders, and scheduling annual policy reviews.
Learn how term life insurance works: coverage for a set period at a fixed premium
Term life covers you for 10, 20, or 30 years. If you die during the term, beneficiaries receive the death benefit. If you outlive the term, coverage ends with nothing paid out. A healthy 30-year-old can get a 20-year $500,000 term policy for $25-$35 per month.
Learn how whole life insurance works: permanent coverage with a cash value component
Whole life covers you for your entire lifetime and builds cash value you can borrow against. Premiums are 5-15 times higher than term: a $500,000 whole life policy for a 30-year-old costs $300-$500 per month versus $25-$35 for term.
For most people, term life insurance is the better financial choice
Financial advisors overwhelmingly recommend 'buy term and invest the difference.' The $275-$465 per month saved by choosing term over whole life, invested in an index fund at 7% for 20 years, grows to $140,000-$240,000—often more than whole life's cash value.
Consider whole life only if you have a specific estate planning need
Whole life makes sense for high-net-worth individuals needing liquidity to pay estate taxes or fund trusts, or parents of special-needs children who need lifetime coverage. For everyone else, term life plus investments provides more value.
Calculate Your Coverage Amount
Start with the 10-12x annual income rule as a baseline
If you earn $80,000 per year, you need $800,000-$960,000 in coverage. This provides your family with 10-12 years of income replacement, which covers the time it takes for a surviving spouse to adjust and for children to become independent.
Add outstanding debts: mortgage balance, student loans, car loans
A $300,000 mortgage, $40,000 in student loans, and a $20,000 car loan adds $360,000 to your coverage need. Your family shouldn't inherit your debts. Include any co-signed debts a family member would become responsible for.
Add future education costs for children
Average 4-year public university costs about $100,000-$120,000 per child (tuition, room, board). Two children = $200,000-$240,000 added to your coverage target. Private universities can double this figure.
Subtract existing assets: savings, investments, employer life insurance
If you have $100,000 in savings, $50,000 in investments, and a $150,000 employer-provided policy, subtract $300,000 from your total need. But don't rely heavily on employer coverage—you lose it when you leave the job.
Your final coverage amount = income replacement + debts + education - existing assets
Example: ($80,000 x 10) + $360,000 + $240,000 - $300,000 = $1,100,000. Round up to $1,200,000. It's better to be slightly over-insured than under-insured. The premium difference between $1M and $1.2M is often just $5-$10 per month.
Choose Your Term Length
Match the term to your longest financial obligation
If your youngest child is 3 and you want coverage until they finish college (age 22), a 20-year term covers you until they're 23. If you just bought a home with a 30-year mortgage, consider a 30-year term.
Common terms: 10 years (cheapest), 20 years (most popular), 30 years (broadest coverage)
A 20-year, $500,000 policy for a healthy 30-year-old runs $25-$35 per month. The same person pays $20-$25 for 10 years or $35-$50 for 30 years. The 20-year term hits the sweet spot for most families with young children.
Check if the policy is convertible to permanent insurance without a new medical exam
A convertible term policy lets you switch to whole life later without proving good health. If you develop a serious condition during the term and still want permanent coverage, this option is valuable. Most quality term policies include conversion for free.
Prepare for the Health Exam
Schedule and complete the paramedical exam (blood draw, urine sample, vitals)
A nurse visits your home or office for a 20-30 minute exam. They check blood pressure, cholesterol, blood sugar, and screen for nicotine and drugs. Schedule the exam for morning when blood pressure and cholesterol readings tend to be lowest.
Avoid heavy meals, alcohol, and intense exercise 24 hours before the exam
A heavy meal raises blood sugar and cholesterol readings. Alcohol elevates liver enzyme levels. Intense exercise temporarily raises blood pressure. Fast for 8-12 hours before the exam and drink plenty of water for easier blood draw.
Disclose your full medical history honestly on the application
Insurers access the MIB (Medical Information Bureau) database and prescription records. Omitting a diagnosis or medication can lead to claim denial years later when your family needs the money most. Honesty protects your beneficiaries.
If you use tobacco, know that premiums are 2-3x higher for smokers
A non-smoker might pay $30 per month for a $500,000 policy, while a smoker pays $80-$100 for the same coverage. If you quit smoking, most insurers reclassify you as a non-smoker after 12 months tobacco-free, cutting your premium significantly.
Compare Premiums and Select Riders
Get quotes from at least 3-5 different insurance companies
Premiums for identical coverage can vary 30%-50% between insurers because each company uses different health rating criteria. A condition that gets you 'standard' rates at one company may qualify for 'preferred' rates at another. Always compare.
Check the insurer's financial strength rating (A.M. Best, Moody's, S&P)
Look for companies rated A or higher by A.M. Best. A strong rating means the insurer can pay claims even during economic downturns. Your policy may be in force for 20-30 years—the company needs to be around to honor it.
Consider a waiver of premium rider (covers premiums if you become disabled)
This rider keeps your policy active if you become too disabled to work and can't pay premiums. It typically adds $2-$5 per month to the premium. Considering that disability is 3-4 times more likely than death during working years, this rider is worth considering.
Consider an accelerated death benefit rider (access funds if diagnosed terminally ill)
This rider lets you access 50%-80% of the death benefit while alive if diagnosed with a terminal illness (typically life expectancy under 12-24 months). Many policies include this rider at no extra cost. Check whether yours does.
Designate Beneficiaries and Review Annually
Name a primary beneficiary (typically spouse or partner)
Name specific individuals, not 'my estate.' Proceeds paid to your estate go through probate, adding 2%-5% in legal costs and 6-12 months of delay. Naming a beneficiary directly means tax-free payout within 1-2 weeks of a claim.
Name a contingent beneficiary (backup if primary beneficiary predeceases you)
If your primary beneficiary dies before you and there's no contingent, the payout goes to your estate (probate). Common contingent beneficiaries: adult children, siblings, or a trust. Update this whenever your family structure changes.
For minor children, name a trust or custodian rather than the child directly
Life insurance cannot be paid directly to a minor. Without a trust or custodian, the court appoints a guardian of the estate, which costs $2,000-$5,000 in legal fees. A trust ensures the money is managed according to your wishes until the child reaches a specified age.
Review your policy annually and after major life events
Marriage, divorce, a new child, a new mortgage, or a significant salary change all affect your coverage needs. A $500,000 policy adequate for a couple without kids may be insufficient when you add a child and a mortgage. Review every January or after any major change.
Frequently Asked Questions
How much life insurance do I need?
The DIME method: Debt (total outstanding) + Income (annual salary x years until youngest child turns 18) + Mortgage (remaining balance) + Education ($100,000-$250,000 per child). A simpler rule: 10-15 times annual income. A 35-year-old earning $80,000 with two young children and a $300,000 mortgage might need $1-$1.5 million. Revisit every 3-5 years as debts decrease and savings grow.
Is whole life insurance ever worth it?
For most people, term life (10-30 years) provides sufficient coverage at 5-15x lower premiums. A 30-year-old can get $500,000 term for $25-$35/month versus $300-$500/month for whole life. Whole life may suit high-net-worth individuals needing permanent coverage for estate tax liquidity (estates above $13.61 million) or business succession. Consult a fee-only financial advisor, not an insurance agent, before purchasing.
Does my employer life insurance provide enough coverage?
Most group policies provide 1-2x salary, far below the 10-15x recommendation. Group coverage typically ends when you leave the job and may not be portable. Purchase individual term insurance while young and healthy to lock in rates independent of employment status.
What medical exam is required for life insurance?
Traditional underwriting includes a 30-45 minute paramedical exam: blood draw, urine sample, blood pressure, height/weight, and health history. Many insurers now offer accelerated or no-exam underwriting for healthy applicants under 50 seeking up to $1-$3 million, using prescription databases and driving records instead. No-exam policies may cost 10-20% more but provide instant decisions.