To answer that question, you need to think about what you would want life insurance to do for you and your family. How old are you? How many dependents do you have? What are your financial obligations? These are the types of things to consider as you determine your coverage needs and compare plans. It may sound complex, but it’s really quite straightforward. This article will help you make sense of the process by explaining:

What are the pros and cons of term life insurance?

Unlike ice cream, life insurance only comes in two basic flavors: Term and permanent. A term life insurance policy provides coverage – a death benefit – for a specific period of time, typically between 10 and 30 years. It is sometimes called “pure life insurance” because unlike whole life insurance, there’s no cash component to the policy – it’s designed purely to give your beneficiaries a payout if you die during the term.

Permanent life insurance (whole life or universal life policy) provides coverage that lasts your entire lifetime. Unlike term, it’s not a “pure life insurance” product because in addition to a death benefit there’s a “cash value” component: A portion of your premium dollars are invested, and this sum grows over time. You can borrow money against that cash value, to use it to help pay your premiums, or pay college expenses for children*.

Compared to a permanent life insurance policy, a term life policy offers a few advantages and disadvantages:

The pros and cons of term life



Premiums are less expensive than whole life premiums

No cash value component

Provides coverage while it’s needed most

Coverage is not permanent

Highest benefit amount per premium dollar

Once term expires there’s no payout

Very affordable for young, healthy policyholders

Becomes more expensive to renew as you get older


Other factors to consider when buying term insurance

How much does it cost? A number of factors go into determining your monthly premiums, such as age, health status, lifestyle, and of course, the coverage amount. But whatever amount you’re looking to get, it probably costs less than you think: A recent LIMRA survey found that 44% of millennials believe that life insurance is at least five times more expensive than the actual cost.

How long might you need coverage? While different companies offer different terms, policies most often come in lengths of 10, 15, 20, and even 30 years.

What type of term policy? Most term policies are level term policies, where the premium stays the same for the length of the term. This is usually the simplest and best option for most people. You can also get a yearly renewable term policy which covers you for a year at a time, with an annual option to renew for the length of the term. Premiums will be lower at first, but they go up with each renewal.

Can you convert to a permanent policy? Most major insurance companies will let you convert a term policy to a permanent policy without a medical exam, at least for a portion of the term.

How financially strong is the insurance company? You want to be sure they’ll be around when your family needs a payout. Make sure the company has a exemplary financial strength ratings from an independent rating agency such as: A.M. Best.

How good are their customer satisfaction scores? Life insurance can be complex. It’s best to go with a company that’s easy to deal with.

How much life insurance do you need?

It’s a good idea to work with a financial representative or broker to get a detailed answer – but for a good starting point, consider these rules of thumb for calculating how much of a death benefit you need:

Human Life Value**
Some financial representatives calculate the amount you need using the Human Life Value philosophy, which is your lifetime income potential: what you’re earning now, and what you expect to earn in the future.

As with every individual, the amount of recommended insurance you purchase depends on many factors. A simple way to get that number, however, is to multiply your salary times 30 if you are between the ages of 18 and 40. The calculation changes based on your age group, so please refer to the chart:


Maximum Life Insurance




30 times income


20 times income


15 times income


10 times income


1 times net worth


1/2 times net worth

Multiply your income by 10
Take your annual salary, add a “0” at the end, and there’s your amount. $50,000 salary x 10 equals $500,000 coverage, $75,000 equals $750,000, and so on. While this estimation method is very simple, it doesn’t actually take into account your true expenses and needs. That leads us to the next formula, which is just a bit more complex.

Multiply your income by 10 – and add college for each child
This approach gives you the added reassurance of knowing your children can have more opportunities. How much should you add? (This will depend on a number of factors, such as the number of children you have, and how much college may cost when they are ready to attend -- so it’s best to consult with a financial advisor for a proper estimated amount.

Use the DIME formula
DIME stands for Debt, Income, Mortgage, and Education – the four big factors to consider when making a detailed estimate of your life insurance needs:

  • Debt: Total all your debts other than your mortgage. Car payments, credit cards, student loans – even personal obligations such as money you may have borrowed from family. And don’t forget to add about $7,000 for funeral expenses.
  • Income: Take your salary and multiply by the number of years you think your family needs protection – or at least as long as you have children at home.
  • Mortgage: Look at your last statement and get the payoff amount. If you have a 2nd mortgage or HELOC (Home Equity Line of Credit) add that in as well (if you haven’t already included it in the debt section above).
  • Education: The anticipated cost for sending each of your children to college: Consult a financial advisor for you best estimated amount. (unless sourced either revise or remove)

Add those four factors up and that’s the amount of coverage you most likely will need. If you already have life insurance (for example through work), you can subtract that from your coverage amount. This method takes a little more work, but it may be more precise – which can help you feel more confident that your family will be taken care of.

How to find the right individual policy to boost coverage from work

You may have some life insurance coverage through work, and that’s great: Employer-sponsored plans offer attractive group rates, and the company sometimes subsidizes part or even all of the cost. However, to protect your family you may be looking for coverage of at least 10 times your salary, and group workplace plans may fall short of that.

Research from Guardian shows that workers who only own group life insurance are more likely to be underinsured compared to those with individual coverage. If you’re looking for additional coverage:

  1. Check the company’s financial strength rating (such as from A.M Best)
    Remember: Independent ratings from third-party rating agencies give an unbiased view of a company’s financial condition. You’ll want a highly-rated company that is built to deliver on the long-term promise of life insurance.
  1. Make sure the policy is convertible
    If you need to get a whole life policy later on because your health has changed, you don’t want a medical exam. Convertibility gives you that option.
  2. Consider getting quotes from several providers

But if you’d rather not call around, try talking with a local financial representative. As trained professionals, they can help you better estimate your needs and find the right carrier – especially if you have a health limitation or other risk factors .

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