Term Life Insurance

Term life insurance answers one question: if you died tomorrow, who would be in financial trouble, and how much money would fix it? You choose a death benefit and a term length, the insurer prices it based on your age and health, and your premium stays level until the term ends. There is no investment component, no cash value, and no payout for outliving the policy. That stripped-down design is a feature, not a flaw. Because the insurer is only pricing mortality risk, term coverage delivers the largest death benefit per premium dollar of any life insurance type, which makes it the default recommendation for most families with dependents.

How much coverage? A common heuristic is 10 to 15 times your gross annual income, and it is only a heuristic. The more precise approach adds up what the money must actually do: replace income until the kids are independent, pay off the mortgage, fund college, cover final expenses, and then subtracts existing savings and any employer coverage. A stay-at-home parent has real economic value too; replacing childcare and household management costs money, so income multiples alone understate the need.

Laddering is worth knowing. Your need usually shrinks over time as the mortgage gets paid down and savings grow, so instead of one large 30-year policy you might stack several smaller policies with different terms. Each rung expires as the need it covered disappears, and you never pay 30-year pricing on coverage you only needed for 10.

Term versus permanent is where compensation shapes advice. Permanent insurance (whole life, universal life) has legitimate niche uses: estate liquidity for taxable estates, funding special-needs trusts, certain business arrangements. But permanent policies pay the selling agent far larger commissions than term does, which goes a long way toward explaining why they are recommended so much more often than those niches would justify. An advisor who earns nothing from the sale, such as an advice-only or fee-only planner, can size the need and let you buy the coverage anywhere.

A hypothetical example: Sam, 35, earns $90,000 a year, has two young kids, a $280,000 mortgage, and a working spouse. The 10-to-15-times-income heuristic suggests roughly $900,000 to $1,350,000 of coverage. Working through the actual needs, income replacement for 20 years, the mortgage balance, and college funding, minus existing savings and a small employer policy, Sam lands at $1,200,000.

Rather than one 30-year policy, Sam ladders: $500,000 for 10 years (the most vulnerable stretch, while the kids are small and savings are thin), $400,000 for 20 years (through college), and $300,000 for 30 years (until planned retirement). Each rung drops off as savings grow and obligations shrink, and the combined premium runs meaningfully less than carrying the full $1,200,000 for 30 years. If Sam dies in year 8, all three policies pay: $1,200,000, income-tax-free, to the beneficiaries.

Pros

• The most death benefit per premium dollar of any life insurance type.
• Simple to compare across insurers—same benefit, same term, lowest reliable price wins.
• Level premiums make budgeting easy for the entire term.
• Many policies are convertible to permanent coverage later without a new medical exam, preserving flexibility if health changes.

Cons

• Coverage ends at the end of the term; renewing afterward is possible but at much higher, age-based rates.
• No cash value, so there is nothing to show for the premiums if you outlive the policy (which is the most likely outcome, and the good one).
• Doesn't address the narrow situations where lifelong coverage is genuinely needed, such as estate liquidity or a special-needs dependent.