Life insurance pays a lump sum to your beneficiaries when you die. It’s not for you — it’s for the people who depend on your income. Whether you need it, how much you need, and what type you should get are questions most people avoid until it’s too late to think clearly about them.
Do you need life insurance?
You need life insurance if someone else depends on your income — a spouse, children, or anyone you financially support. If you’re single with no dependents, no significant debt, and no one relying on your income, life insurance is likely unnecessary right now. The purpose is income replacement for dependents, not a savings vehicle.
Term vs whole life insurance
Term life insurance covers you for a specific period (10, 20, or 30 years) and pays out only if you die during that term. It’s simple and cheap. Whole life insurance covers you for life and includes a cash value component. It’s significantly more expensive and the cash value component rarely outperforms simply investing the premium difference. Most financial experts recommend term life for the vast majority of people.
How much coverage do you need?
A common guideline: 10–12 times your annual income. If you earn $60,000, a $600,000–$720,000 policy. The idea is that the death benefit, invested conservatively, could replace your income indefinitely. Consider your mortgage balance, dependents’ ages, and other financial obligations when determining the right amount.
How much does term life cost?
Less than most people think. A healthy 30-year-old can get a $500,000 20-year term policy for $20–$30/month. Rates are lowest when you’re young and healthy — every year you wait, premiums increase. If you have dependents, getting coverage now costs significantly less than waiting.