Life insurance agents make their living selling whole life policies. They get much bigger commissions on whole life than term life. That should tell you something.
Most people need term life insurance. Some people need no life insurance at all. Almost nobody needs whole life insurance, but that’s what gets sold most often because that’s what pays the agent best.
Here’s what you actually need to know:
What Life Insurance Actually Does
Life insurance pays money to whoever you name when you die. That’s it. The purpose is to replace your income so your family can pay bills after you’re gone.
If nobody depends on your income, you don’t need life insurance. If you’re single with no kids, life insurance is a waste of money. If you’re retired and living on savings and Social Security, you don’t need it. If you have enough assets that your family would be fine without your income, you don’t need it.
You need life insurance if someone would struggle financially if you died tomorrow. Usually that means you have a spouse, kids, a mortgage, or other people counting on your paycheck.
Term Life Insurance: This is the ONE to Buy
Term life insurance covers you for a specific period. You pick 10 years, 20 years, 30 years. You pay the same premium every year. If you die during that period, your beneficiary gets the money. If you don’t die, the policy ends and you get nothing back.
That sounds like a bad deal until you realize that’s how all insurance works. Your car insurance doesn’t pay you back if you don’t crash. Your homeowners insurance doesn’t refund your premiums if your house doesn’t burn down.
Term life is cheap. A healthy 35-year-old can probably get a 20-year, $500,000 policy for around $25 to $35 per month. That’s less than most people spend on streaming services.
Why Term Life Works
You need life insurance while you have financial obligations. Once your kids are grown, your mortgage is paid off, and you’ve saved enough for retirement, you don’t need life insurance anymore. Your need for coverage diminishes over time.
Term life matches that reality. You buy coverage for the years you need it. By the time the policy ends, you’ve (hopefully) built enough wealth that your family doesn’t need the death benefit anymore.
Most people buy 20 or 30-year term policies when they’re young, have kids, and take out a mortgage. By the time those 20 or 30 years are up, the kids are out of the house, the mortgage is mostly paid down, and retirement savings have grown. The life insurance did its job by being there during the vulnerable years.
How Much Term Life You Need
The standard recommendation is 10 times your annual income. If you make $60,000 a year, get $600,000 in coverage. That sounds like a lot, but remember: your family needs to replace decades of your income.
Here’s a more precise way to think about it. Add up:
- Outstanding mortgage balance
- Other debts you want paid off
- 5 to 10 years of living expenses for your family
- College costs for kids (if applicable)
- Final expenses (funeral, etc.)
That total is roughly how much coverage you need.
Don’t obsess over getting this exactly right. A 35-year-old with two young kids and a $300,000 mortgage should probably have somewhere between $500,000 and $1,000,000 in coverage. Whether you pick $750,000 or $850,000 matters less than actually having a policy.
What Term Life Costs
Your age and health determine the price. A 30-year-old pays less than a 50-year-old. A healthy person pays less than someone with diabetes or high blood pressure.
Sample rates for a healthy person buying a 20-year, $500,000 term policy:
- Age 30: $20-25/month
- Age 35: $25-30/month
- Age 40: $35-45/month
- Age 45: $55-70/month
- Age 50: $90-110/month
These are ballpark numbers. Your actual rate depends on your health, whether you smoke, and which insurance company you use. But the point is clear: term life is affordable when you’re young and gets more expensive as you age.
That’s why you should buy it when you need it, not wait until later. Waiting five years might double your premium. Developing a health condition might make you uninsurable.
Whole Life Insurance: Almost Certainly Don’t Buy This
Whole life insurance covers you for your entire life as long as you keep paying premiums. It also builds cash value over time, which you can borrow against or withdraw. The insurance company invests part of your premium and the policy accumulates value slowly.
This sounds appealing until you look at the numbers.
Why Whole Life Is Expensive
A 35-year-old might pay $25 per month for $500,000 in term life coverage. That same person would pay around $400 to $500 per month for $500,000 in whole life coverage.
You’re paying 15 to 20 times more for the same death benefit. The extra money goes toward the cash value and the insurance company’s costs.
Why the Cash Value Doesn’t Make Sense
Insurance agents pitch whole life as “forced savings” or an investment. The problem is it’s a terrible investment.
The cash value grows slowly. In the first 10 years, most of your premium goes to commissions and fees, not cash value. After 20 years, you might have accumulated $80,000 in cash value on a policy where you paid in $120,000. That’s a negative return for two decades.
Compare that to buying cheap term insurance and investing the difference. If you buy $25/month term insurance instead of $450/month whole life, you free up $425/month. Put that in a stock market index fund for 20 years and you’d likely have $200,000 or more. See the snowball calculator at the bottom of this page: [Compound Interest]
Even a conservative investment typically beats whole life cash value by a wide margin. And you control the money. With whole life, the insurance company controls it and charges you fees to access your own cash.
When Whole Life Might Make Sense
There are rare situations where whole life works:
- You’ve maxed out every other tax-advantaged account (401k, IRA, HSA) and still have money left to save
- You have a special needs dependent who will need financial support after you die
- You own a business and need life insurance for a buy-sell agreement
- Your estate will owe significant estate taxes and you need guaranteed liquidity
If none of these apply to you, skip whole life. It solves problems most people don’t have while costing far more than necessary.
Universal Life, Variable Life, and Other Variations
Insurance companies offer dozens of variations: universal life, indexed universal life, variable universal life. These are all permanent life insurance policies with different ways the cash value gets invested or credited.
They all share the same fundamental problems as whole life:
- Expensive compared to term
- Complex fee structures
- Cash value grows slowly
- You can invest the money better on your own
Don’t get distracted by the marketing. These products exist because they’re profitable for insurance companies and agents, not because they’re good deals for customers.
How to Buy Term Life Insurance
Skip the Agent
You don’t need to sit through a sales pitch. You can buy term life insurance online in about 20 minutes.
Companies like Policygenius, Ethos, and Haven Life let you compare quotes and apply online. You answer health questions, pick your coverage amount and term length, and get approved. For smaller policies (under $500,000), you might not even need a medical exam.
Get Quotes from Multiple Companies
Premiums vary significantly between insurance companies. One company might charge you $30/month while another charges $45/month for identical coverage.
Use a comparison site to get quotes from several insurers at once. Apply with the cheapest option that has good financial ratings (AM Best rating of A- or better).
Don’t Wait
Premiums increase with age and health issues. If you need life insurance, buy it now. Waiting a year might cost you hundreds of dollars extra over the life of the policy.
Pick the Right Term Length
Match your term length to when you’ll no longer need coverage:
- Have young kids? Get 20 or 30 years to cover them until adulthood
- Refinancing a 15-year mortgage? Get 15-year term
- 10 years from retirement with no dependents? Get 10-year term
Most people default to 20 or 30 years because life insurance is cheap enough that buying a little more coverage than you need is fine.
What Your Employer’s Life Insurance Actually Covers
Many employers offer free life insurance as a benefit, typically one or two times your annual salary. That’s nice but not enough.
If you make $60,000 and your employer provides 2x salary coverage, that’s $120,000. That might cover your funeral and a year or two of expenses. It won’t replace decades of lost income.
Employer coverage also disappears if you leave the job. You can usually convert it to an individual policy, but the rates are terrible. Don’t count on employer coverage as your primary protection.
Get your own term policy outside of work. Treat employer coverage as a bonus, not your main insurance.
Common Objections to Term Life (And Why They’re Wrong)
“I’m wasting money if I don’t die”
You’re wasting money if you crash your car, get robbed, or have a house fire too. That’s how insurance works. You pay for protection you hope you never need.
The goal is NOT to die and collect. The goal is to protect your family if something goes wrong. If you outlive your term policy, congratulations. That means you survived long enough to build wealth and don’t need the coverage anymore.
“Term gets expensive when I’m older”
Yes, if you try to buy a new term policy at 60, it’s expensive. But you shouldn’t need life insurance at 60 if you’ve been building wealth during your working years.
The insurance you bought at 35 covered you through your peak obligation years. By the time it expires, you should have retirement savings, a paid-off house, and grown kids. You self-insure through accumulated wealth.
“Whole life is an investment”
No, it’s insurance with a bad investment attached. You get better returns keeping them separate: buy cheap term insurance and invest the savings in low-cost index funds.
Usually, the only people who benefit from combining insurance and investing are the insurance agents who collect commissions.
The Bottom Line
Buy term life insurance if people depend on your income. Get enough to cover your debts and replace 10 to 20 years of income. Pick a term length that matches when your obligations will decrease.
Skip whole life and its variations unless you’re wealthy enough that you’ve already maxed out every other savings option and you need permanent insurance for estate planning.
Don’t overthink this. A healthy 35-year-old with a mortgage and kids should buy a 20-year, $500,000 to $1,000,000 term policy. It costs about as much as a gym membership and protects your family if you die unexpectedly.
Everything else is marketing designed to sell you expensive policies you don’t need.