Life Insurance: How Much Coverage Do You Need and What It Costs

Life insurance is the most important financial product most people avoid thinking about. If anyone depends on your income, you need it. The good news: term life insurance is remarkably affordable.

The quick calculation: multiply your annual income by 10-12. A $75,000 earner needs $750,000-$900,000 in coverage. Adjust upward for mortgage balance, future college costs, and single-income households.

A more precise calculation: add up debts (mortgage, car loans, student loans), multiply remaining working years by annual income, add college funding goals, subtract existing savings and investments. This gives your actual coverage gap.

Term life insurance rates for a healthy 30-year-old: $500,000 policy costs $20-$30/month, $1,000,000 costs $35-$55/month. A healthy 40-year-old: $500,000 costs $35-$50/month, $1,000,000 costs $55-$85/month.

Term vs whole life: term insurance covers you for a set period (10, 20, or 30 years) and is 5-15x cheaper than whole life. Whole life builds cash value but is expensive and rarely the best investment vehicle. For most families, term life is the clear winner.

The best time to buy is now. Every year you wait, rates increase. Buying a 30-year term policy at 30 is far cheaper than a 20-year term at 40, even though both cover you to age 60.

Health factors that affect rates: smoking (2-3x more expensive), BMI, blood pressure, cholesterol, family medical history, dangerous hobbies, and occupation. Getting healthy before applying can save thousands over the policy's life.

No-exam policies are faster (approved in days versus weeks) but cost 20-40% more than fully underwritten policies. If you're healthy, the traditional medical exam route saves significant money over 20-30 years.

Where to buy: independent insurance brokers compare multiple carriers for you (recommended). Online comparison tools (Policygenius, Ladder, Haven) simplify shopping. Going directly to one carrier means you only see their rates.

Common mistakes: buying too little coverage, buying whole life when term is appropriate, not disclosing health issues (grounds for claim denial), naming minor children as beneficiaries (use a trust instead), and letting coverage lapse when you still need it.