Life insurance is designed to provide money to named beneficiaries when the insured person dies, subject to the policy terms. Before comparing products, determine what that money would need to accomplish.

Common financial needs can include:

The policy should be built around the need rather than starting with a product. Someone trying to replace income while children are young may reach a different conclusion from someone who wants permanent coverage for an obligation expected to remain throughout life.

There is no single coverage multiple that is appropriate for every household. A more useful approach is to estimate the financial obligations that would remain after your death and subtract resources already available to address them.

Consider questions such as:

• How much household income do you currently provide?
• For how many years would that income need to be replaced?
• What debts would your household want to repay?
• How much would be needed for child care, education, or other dependent-related expenses?
• What existing savings and investments could already be used?
• How much life insurance do you already have through an employer or individual policy?
• Are there final expenses or other financial obligations you want the policy to address?

This is only a simplified example, not a recommendation for a particular coverage amount. Real needs depend on household finances, inflation, investment assumptions, taxes, existing insurance, and individual circumstances.

The length of the financial need is one of the most useful ways to decide between term and permanent life insurance.

A need may be temporary if it is expected to decline or disappear after a certain period. Examples can include replacing income until children become financially independent, protecting a mortgage while the balance is being repaid, or providing support until a spouse reaches retirement.

Other needs may be expected to continue indefinitely. In those situations, a permanent policy may deserve consideration if its cost, guarantees, and structure fit your objectives.

Neither category is automatically better. Term life can allow a household to purchase a larger death benefit for a lower initial premium, while permanent insurance can provide features that term insurance does not. The better choice depends on what you need the policy to accomplish.

Term life insurance pays a death benefit when the insured dies during the covered term, assuming the policy is in force and the claim qualifies under its terms.

When comparing term policies, look beyond the initial premium and review:

• The length of the guaranteed level-premium period.
• Whether the death benefit remains level throughout the term.
• Whether the policy can be renewed after the initial term.
• How renewal premiums are determined.
• Whether renewal rights end at a particular age.
• Whether you can convert the policy to permanent insurance without new evidence of insurability.
• When any conversion option expires.

Renewability can be useful if your health changes, but renewal premiums can be substantially higher than the original level-term premium. A policy that appears inexpensive today should therefore be evaluated based on how long you expect to keep it.

Permanent life insurance is designed to provide longer-term protection and may include cash-value features. Common forms include whole life, universal life, and variable universal life.

Whole Life

Whole life generally combines permanent death-benefit protection with cash value. Policy designs differ, so review which premiums, cash values, and benefits are guaranteed and which may depend on dividends or other non-guaranteed elements.

Universal Life

Universal life policies can offer more flexibility in premiums or death benefits, depending on the contract. That flexibility also makes it important to understand the cost of insurance, credited interest, guarantees, and how much value must remain in the policy to keep it in force.

Variable Universal Life

Variable universal life can include investment choices whose values fluctuate with market performance. These policies involve additional investment risk and complexity, so guarantees and non-guaranteed projections should be evaluated separately.

A policy provides little long-term value if the premium eventually becomes unaffordable and the coverage lapses before it is needed.

Before buying, determine whether the premium is guaranteed for the full period you expect to own the policy. Some term policies have level premiums for a specified period and much higher renewal premiums afterward. Some permanent policies can include flexible or non-guaranteed elements that require closer monitoring.

Ask yourself:

Cash value can be useful, but it should be understood separately from the death benefit. Policies differ in how quickly cash value develops, how interest or investment performance affects it, and what amounts are guaranteed.

If you borrow against a policy’s cash value, the loan can have interest charges and may reduce the amount ultimately available to beneficiaries if it is not repaid. Withdrawals can also affect policy values and benefits.

If cash value is one of the main reasons you are considering a permanent policy, request a year-by-year illustration and identify the guaranteed and non-guaranteed values. Do not evaluate only a distant projected number.

Riders modify or add benefits to a life insurance policy. They can be useful, but they can also increase the premium and introduce additional conditions.

A rider is worthwhile only when the additional protection solves a real need at a reasonable cost. Read the eligibility rules rather than relying on the rider’s name.

The beneficiary designation determines who is intended to receive the policy’s death benefit. A policy can generally have more than one beneficiary, and percentages can be assigned among them.

Review beneficiary designations after major life events such as marriage, divorce, births, deaths, or significant estate-planning changes. Do not assume a will automatically overrides the beneficiary designation on a life insurance contract.

Special planning can be needed when a beneficiary is a minor or when a trust, estate, charity, or person with special financial circumstances is involved. Those situations may warrant individualized legal or tax guidance.

Employer-provided group life insurance can be valuable, but it should be compared with your household’s actual needs rather than treated as automatically sufficient.

Check the death benefit amount, whether optional supplemental coverage is available, what happens when you leave the employer, and whether you can convert or continue the coverage.

An individual policy can provide protection that is not tied to your current job, while workplace coverage may still be useful as part of an overall insurance plan.

Replacing an existing policy is different from purchasing your first policy. A new contract can have different premiums, surrender charges, contestability provisions, guarantees, underwriting results, and cash values.

Do not cancel an existing life insurance policy simply because you have applied for a new one. The NAIC advises consumers not to drop an existing policy until the new policy has been received and carefully reviewed.

If your health has changed since the original policy was issued, replacing coverage can be especially significant because the new insurer may price or approve the application differently.

Life insurance illustrations can contain both guaranteed and non-guaranteed values. That distinction matters most with policies whose future cash values or performance depend on dividends, credited interest, market performance, or other assumptions.

Ask the insurer or agent to explain:

Life insurance death proceeds received by a beneficiary because of the insured person’s death are generally not included in the beneficiary’s federal gross income. However, exceptions exist, and interest paid on proceeds can be taxable.

Cash-value transactions can also have their own tax consequences. For example, surrendering a policy for more than your cost in the contract can create taxable income.

Because ownership structures, transfers, trusts, business arrangements, policy loans, and other situations can change the result, tax treatment should not be the sole reason to purchase a particular policy without understanding the specific rules that apply.

A lower life insurance premium does not automatically mean one policy offers better value. Make sure you are comparing the same type of protection.

Keep these factors consistent or clearly identify the differences:

• Death benefit.
• Coverage period.
• Guaranteed premium period.
• Renewal provisions.
• Conversion options.
• Riders.
• Cash-value guarantees where applicable.
• Non-guaranteed assumptions.
• Surrender charges or other policy costs.

Life insurance can remain in force for decades, so the company behind the policy matters. Your state insurance department can help you verify whether an insurer or insurance producer is licensed to do business in your state.

You can also consider the insurer’s financial strength information, complaint history, service, and ability to explain the contract clearly. Ratings and complaint data provide context but should not be the only factors used to make a decision.

Do not sign an application until you have reviewed the answers for accuracy. Insurance applications can become important when the insurer later evaluates a claim.

Choosing Coverage Based Only on an Income Multiple

Income multiples can be a rough starting point, but they do not account for your exact debts, dependents, existing assets, coverage, and future financial obligations.

Buying the Largest Policy You Can Qualify For

More coverage is not automatically better if the premium makes the policy difficult to maintain. Buy protection that addresses a real need and fits a sustainable budget.

Focusing Only on the First-Year Premium

Understand whether premiums can increase and what the policy may cost if you keep it longer than the initial guaranteed period.

Treating Non-Guaranteed Illustrations as Promises

Projected values may depend on assumptions that do not occur. Separate contractual guarantees from illustrations of potential future performance.

Canceling Old Coverage Before New Coverage Is Final

Keep existing insurance in force until the replacement policy has actually been issued, received, and reviewed.