Ann Logue (rhymes with vogue) is a writer specializing in business and finance. She is the author of five books on investing, including Hedge Funds for Dummies and Day Trading for Dummies, and publishes a Substack newsletter called “The Whatever Years.”
She has worked for several fintech startups as a consultant, employee, and investor. She has also served as a Fulbright grantee and holds the Chartered Financial Analyst designation.
David Schepp is a veteran financial journalist with more than two decades of experience in financial news editing and reporting for print, digital, and multimedia publications.
Life insurance is particularly important for people whose families depend on their income or unpaid household work. Parents with young children and couples sharing a mortgage are common examples. Life insurance can help replace lost income, pay off debts, and cover future expenses. It can also serve estate-planning needs or provide long-term support for a dependent with a disability.
How much life insurance do I need?
The amount of life insurance you need depends on your income, financial obligations, and the people who depend on you. Start by estimating how many years of income your family would need to replace, then add outstanding debts and future expenses, such as college tuition. Subtract savings, investments, and other available resources to arrive at a starting point for coverage.
What are life insurance riders, and are they worth it?
Life insurance riders are optional features that customize a policy, usually at an additional cost. Common examples include accidental death benefits, waivers of premium if you become disabled, and coverage for long-term care expenses. Whether a rider is worth the extra cost depends on your circumstances, the protection it provides, and whether that protection is already available through other insurance.
Deciding whether you need life insurance is one of those milestones that signals youâve stumbled into adulthood. Although an insurance agent might insist that more coverage is always betterâlikely influenced by their commission structureâthe truth is more nuanced.
Life insurance replaces your income after you die, a necessity especially if you have young children or a mortgage.
If your estate is large enough to trigger the estate tax, life insurance can help your beneficiaries pay the bill.
Insurance contracts range from simple to complex and expensive, and often involve a hard sell.
How life insurance protects your income
When you die, your income dies with you. If you have children at home or share a mortgage with a spouse or partner, the loss of income could make things difficult for those left behind. Life insurance pays money to your beneficiaries after your death, helping them manage expenses and maintain their standard of living.
The most basic type of life insurance is term life. You agree to pay a monthly or annual premium for a certain number of years, and if you die during that time, those youâve named as beneficiaries receive money. The contract ends either when the time is up, if you stop paying premiums, or if you die during the coverage period. For consumers who are young and healthy, term life is a relatively inexpensive way to ensure that their families are protected against financial loss should they die within the term.
Tips for calculating your life insurance needs
Determining how much life insurance to buy can feel daunting, but a simple framework can help, depending on what youâd like the policy to accomplish. Consider these key factors:
Paying off debt. Add up the debts youâd want to eliminate, such as a mortgage, student loans, or credit card balances, to ensure your family isnât burdened with them.
Future expenses. Think about significant costs, such as college tuition or ongoing caregiving for a dependent, that would need to be covered after your death.
Savings and assets. Subtract any savings, investments, or other resources your dependents could use to avoid buying too much coverage.
Calculating these amounts gives you a starting point for the coverage you might need. From there, you can adjust based on your familyâs circumstances and priorities.
If your family relies on your income or the unpaid work you do caring for the household and children, you probably need life insurance.
When life insurance becomes more than just coverage
A common criticism of term life insurance is that consumers pay premiums without receiving any return unless they die before the term ends. The insurance industry introduced products designed to address this concern, though they also come with high commissions to pay salespeople.
One of these products is whole life insurance, which provides lifelong coverage as long you continue to pay the premium. These premiums are designed to exceed the cost of the death benefit in the early years, with the extra amount invested to build cash value. You can withdraw some of that cash value or borrow against it, and some policyholders use cash value to purchase an annuity that provides income in retirement.
Over time, a common issue with whole life insurance became clear: The premiums can be significant, and missing payments means losing coverage. To offer more flexibility, insurers introduced universal life insurance, which lets policyholders vary their premium payments within limits. Paying more builds cash value, while paying less may reduce it.
Insurance riders: Extra features or extra costs?
A rider is an optional feature you can add to a life insurance policy to customize your coverage. Riders often address specific needs, but at an additional cost. Common examples include:
An accidental death benefit rider increases the payout if death occurs due to an accident.
A waiver of premium covers your premiums if you become disabled and canât work.
Long-term care riders provide funds for long-term care expenses if you meet certain conditions.
Riders can enhance your policy, but they may not always be worth the extra expense. Choose a rider carefully to ensure youâre not being taken for a ride.
Collectively, whole life and universal life insurance are known as permanent life insurance, because the death benefit remains in place for the contract holderâs entire life (as long as the payments are kept up). Unlike term life, these policies donât expire. Adding features, known as riders, increases the overall cost of the policy, which may result in fees or a higher monthly premium.
Reasons to choose permanent life insurance
For most consumers, purchasing term life insurance they can afford along with disciplined investing is a better choice than permanent life insurance. Permanent life insurance does essentially the same thingâproviding coverage while building cash valueâbut with additional fees.
Still, there are specific situations where permanent life insurance, particularly whole life, may be worth considering. One reason is if you expect your owe estate taxes. As of 2026, the U.S. government taxes estates valued at $15 million per individual. Life insurance can protect part of your estate from taxes or provide funds for your beneficiaries to pay the tax bill.
Another reason to consider permanent life insurance is to provide ongoing income for someone who depends on you financially. For example, a child with a disability that makes working difficult or impossible could benefit from the financial support life insurance offers.
The bottom line
Term life insurance is often the best choice for those with young children or a mortgage who need coverage. Itâs relatively affordable, especially if youâre disciplined enough to invest the money you save on premiums by choosing term life over permanent life insurance. Permanent life insurance, while significantly more expensive, offers lifelong coverage and may make sense if you have specific needs, such as complex estate planning or providing for a dependent with long-term care needs.
Understanding your financial goals and circumstances can help determine whatâs right for you. If you need guidance, a financial advisor can help you weigh your options while keeping your priorities in mind.
Quiz: Test your knowledge
This quiz isnât easy, but life insurance is one of the biggest, most consequential financial decisions youâll ever make. Understand the details before signing on the dotted line.
