Term life insurance
Buy term, invest the difference. Who needs coverage, who does not, how much, for how long, and why the expensive kind gets recommended so often.
A plain-language reference, not advice. Explains what life insurance is for, why term coverage suits nearly everyone who needs coverage at all, and how to size it. The income-multiple rule of thumb is a common heuristic, not a standard, and is flagged. No insurers are named. Anyone with complex estate, business, or special-needs situations should get individual advice.
Part of Financial 101 — free, plain-language reference guides. Not personalised advice. Download the one-page Order of Operations checklist.
Who needs it, and who does not
Life insurance exists to replace your income for people who depend on it. That sentence tells you who needs it: someone whose death would leave a spouse, children, or other dependants financially exposed. It also tells you who does not: a single person with no dependants, a retiree whose spouse is provided for by the portfolio, a child. The insurance industry sells policies to all of those people anyway. The question to ask is not “should I have life insurance” but “who would be in trouble if my income stopped,” and if the answer is nobody, you are done.
Term versus permanent
Term life covers you for a fixed period — commonly 10, 20, or 30 years — and pays a fixed sum if you die during it. Nothing else. No cash value, no investment component. If you outlive the term, the policy simply ends. Because it is pure insurance, it is cheap: a healthy person in their thirties can typically buy a large death benefit for a modest annual premium.
Permanent life — whole, universal, variable, indexed — combines a death benefit with a savings or investment account, lasts your whole life, and costs several times more for the same coverage. The pitch is that you are “building cash value” instead of “throwing money away” on term. The reality is that you are buying a mediocre, expensive, illiquid investment bundled with an overpriced death benefit, and paying a large commission for the privilege. These products are among the most heavily commissioned things a financial salesperson can sell, which explains a great deal about how often they are recommended.
The Boglehead position is close to unanimous and has been for decades: buy term, invest the difference. Get the cheap coverage you need for the years you need it, and put the premium you saved into index funds in tax-advantaged accounts. By the time the term expires, the portfolio should be the protection. There are narrow exceptions — certain estate-planning and special-needs situations, some business arrangements — and they are narrow enough that if one applies to you, you already have a lawyer.
How much
Enough to replace your income for as long as your dependants would need it, plus debts you would want cleared, plus large future costs like education, minus assets already available. The rough-and-ready heuristic is ten to fifteen times annual income, which lands most families in the right neighbourhood. A more careful version adds up the actual numbers: years of income to replace, the mortgage, tuition, final expenses, less savings and any existing coverage. A stay-at-home parent needs coverage too — replacing what they do costs real money.
Err on the side of more. Term is cheap enough that the difference between adequate and generous coverage is small in dollars and large in consequence.
How long
Until the dependants are no longer dependent, or the portfolio can carry them — whichever comes first. For a young family that usually means twenty to thirty years. Two overlapping policies of different lengths can match coverage to need more precisely and cost less than one long one.
Buying it
Employer coverage is a reasonable free base but rarely enough, and it disappears when you change jobs; own a policy of your own. Compare quotes across several insurers through an independent broker or comparison site, because prices for identical coverage vary widely. Check the insurer’s financial-strength rating. Answer the health questions honestly; misstatements can void the policy when it matters. And pick a level-premium term, so the price does not rise mid-policy.
Common mistakes
Buying permanent insurance from the person who also manages your money. Buying too little because term felt like “wasted” money if you survive — surviving is the point. Letting employer coverage stand in for a real policy. Naming no beneficiary, or naming a minor child directly rather than a trust or guardian. Forgetting the stay-at-home spouse.
Checklist
Decided whether anyone depends on your income · Coverage sized by the add-up method, cross-checked against 10–15× income · Term length matched to years of dependency · Level-premium term chosen · Quotes compared across several insurers · Beneficiaries named correctly · Both spouses covered.
Related: Disability insurance · Annuities · How planners get paid
Verification queue
Check each of these before publishing, then delete this block.
- 10–15× income heuristic — present as a common rule of thumb; consider citing a consumer-protection or industry source.
- ‘Several times more’ cost of permanent vs term — confirm with a dated comparison from a neutral source before keeping the phrasing.
- Commission levels on permanent life products — keep qualitative unless citing a named source.
- Rating agencies for insurer financial strength — confirm before naming.
- Beneficiary rules for minors (UTMA/trust considerations) vary by state — keep general.
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