Life insurance pays a tax-free death benefit to the people you choose when you pass away, in most cases. It helps your family replace your income, pay off a mortgage, cover college costs and handle final expenses.
Main types of life insurance
- Term life: covers you for a set period, often 10, 20 or 30 years. It is the most affordable way to get a large amount of coverage.
- Whole life: permanent coverage with fixed premiums and a cash value that grows at a guaranteed rate.
- Universal life: permanent coverage with flexible premiums and a cash value linked to interest rates or market indexes.
- Final expense insurance: a small whole life policy designed to pay for funeral and end-of-life costs.
- Group life insurance: offered by many employers, usually a multiple of your salary, but it often ends when you leave the job.
How much life insurance do you need?
A common rule of thumb is 10 to 12 times your annual income, but a needs-based calculation is more accurate. Add up:
- The years of income your family would need to replace
- Your mortgage and other debts
- Future costs such as childcare and college
- Final expenses
Then subtract your savings, investments and existing coverage.
What affects the price
Life insurance rates depend mainly on your age, health, family medical history, tobacco use, occupation, hobbies, the coverage amount and the length of the term. Buying earlier, while you are young and healthy, usually locks in lower premiums.
How to apply
- Estimate the coverage amount and the term you need.
- Compare quotes from several highly rated insurers.
- Complete the application honestly; you may need a medical exam or health questionnaire.
- Name your beneficiaries and keep them up to date after major life events.
Read more: term vs. whole life insurance.
Find the right life insurance for your family
Compare quotes from several licensed insurers before you buy. Rates for the same coverage can vary widely from one company to another.
This guide is for general information only and is not insurance, legal, tax or financial advice. Coverage, rules and prices vary by state, insurer and policy. Always read your policy documents and speak with a licensed insurance agent or your state insurance department before making a decision.