Life Insurance Coverage: An Expert Guide (2025)

There are several types of life insurance coverage. Each type offers different benefits, and rates are impacted by many factors, such as age, sex, occupation, and hobbies.

Who Needs Life Insurance

Life insurance is a necessity for anyone that has dependents relying on them and/or their income. Here are examples of people who would benefit from the protection of a life insurance policy:

Married Couple – A duel income couple that relies on both incomes to sustain their quality of life is a good example of people who would benefit from life insurance. If both people make significantly different levels of income, the policy for each individual can be adjusted to help offset the loss of the other.

A married couple where only one spouse works would be even more dependent on life insurance should the income producer pass away. With no income whatsoever, the surviving spouse could deplete any savings or assets the couple had rather quickly.

Couple with Children – This situation is even more important to have adequate life insurance.  Children require a lot of financial resources as they grow, especially parents wanting to send their kids to college. If your child takes out a student loan, even that will impact your financial plans.

If both parents work then the life insurance can offset the loss. If both parents do not work, then the death benefit can cover either the loss of the wage earner or the increased cost of hiring help with the children, should the stay-at-home spouse pass away.

Single with Children – Here is an example of a scenario where proper life insurance coverage is vital. It is important to think about what would happen to kids if the parent were to pass away, and then imagine how that could be eased if there was a large enough financial safety net to continue providing for the children.

Read more:

• Life Insurance Guide for Adult Children
• Best Life Insurance Policies for Children

Business Partners – A lot of small businesses that are run by two or more people could be forced to shut down if one of the business partners were to pass away. Frequently the other partner cannot carry the load or must buy out a widow in order to continue operating, and this could be too big of a financial burden to come out of the individual’s pocket.

While these are only a few situations where life insurance can be crucial, it is important to analyze your own situation and think about what would happen to others if you were no longer around.

Read more: Life Insurance Guide for Business Partners

Term Life Insurance

SEE ALSO: Why Term is Better Than Whole Life Insurance

Term life insurance is one of the most affordable ways to ensure you have adequate protection for anyone or anything that relies on you and your income should the unthinkable happen. Most finance professionals agree that adequate life insurance is a foundation for a successful finance portfolio.

The most affordable and common type of life insurance is called guaranteed level term. Guaranteed level term is a temporary life insurance policy that works in a similar fashion to other policies such as home or auto insurance. The insured (policyholder) pays the insurance company a fixed premium on a monthly, quarterly, semi-annual, or yearly basis, in exchange for life insurance coverage at a predetermined amount.

Level term is called temporary because, at the end of the policy, there is no value such as with permanent life insurance that also builds a savings or investment account.

Read more: Term vs Permanent Life Insurance: Which is better?

Term life insurance is perhaps the easiest to understand because it is a simple exchange between two parties, the insured and the insurance company. Guaranteed level term life insurance is commonly sold in different lengths, often ranging from 5 to 30 years.

The insurance company will determine a premium payment based on an applicant’s age, sex, medical history, medical exam information, personal hobbies, and even occupation. (For more information, read our “Does your occupation affect the price of life insurance?”).

The underwriter will compare all of this data along with actuary tables that indicate the likelihood a person will die within a given time frame and determine the amount of premium required to insure that person against death.

In general, the younger and healthier you are the lower your premium will be. Once a premium is determined and agreed to by both parties, the price will stay constant for the entire policy.

So if a 25-year-old male signs up for a $1 million dollar 20 year guaranteed level term life insurance policy with a premium payment of $20 per month, that cost will remain at that level until the policy expires at age 45 or he stops making the premium payments, whichever comes first.

Read more: How much does a million dollar life insurance policy cost?

How Much Life Insurance You Need

This question can be difficult to assess on your own and may require the assistance of an insurance or financial professional. But a good rule of thumb is you need enough life insurance to cover what your dependents would lose from you not being around.

If income is the most important thing for your surviving dependents, then you want to get enough life insurance so that the principal death benefit can be invested in a way that would produce a similar amount that your lost income would. The money could then be invested or used to purchase an annuity, for example.

A good rule of thumb is somewhere between 8-12 times your current (or expected) yearly income, but be sure to discuss with a professional if you are unsure.

Sometimes people just want to pay something off like their house or pay for their kid’s college with the death benefit. More financially established families may have enough assets to provide for day-to-day living already, and getting rid of some of those big payments could be all they need. If this were the case, simply adding up the total required to cover these costs and finding a policy with that level of benefit would be sufficient. (For more information, read our “Can you have too much life insurance?”).

Read more: Short-Term Life Insurance: What It Is and How It Works

Beneficiary and Settlement Information

The death benefits on a term life insurance policy can be paid out to just about any individual or entity, including businesses and non-profit organizations. The method by which the beneficiaries receive the funds is an important thing to determine.

A common method for death benefit distribution is what is called a ‘lump sum’ payment. This means upon proof of death, the insurance company will write a check or make a payment for the entire benefit amount and give it to the beneficiary (or beneficiaries). (read our “How and When to Change Your Life Insurance Beneficiary”}” data-sheets-userformat=”{“2″:4737,”3”:{“1″:0},”10″:2,”12″:0,”15″:”Arial”}”>How and When to Change Your Life Insurance Beneficiary” for more information).

The beneficiary then has the ability to do with it what they please. This method is very common and recommended when the receiving party is trusted to do what the policy owner would wish. (For more information, read our “How to Choose a Life Insurance Beneficiary“).

Another option is to have the insurance company hold the funds and distribute them over time in a structured payment process. This is similar to an annuity (or sometimes converted to one) and allows the beneficiary to receive smaller payments for an extended period of time. This option is good when the receiving party is either unable or incapable of managing a lump sum distribution.

Read more: What is a life insurance death benefit?

Things That Impact The Cost of Term Life Insurance

When insurance providers are determining the cost of a term life insurance policy, there are many factors that they look at. Here are some of the most common:

Age – The age of the person is very important when determining the premium for life insurance since they can check actuary tables to determine the likelihood an individual is to die during the term policy.

Sex – Women, on average, live longer than men, so gender plays a big role in determining mortality rates and thus life insurance premiums.

Occupation – Underwriters will look at a person’s job when determining the premium because certain careers are more dangerous and thus have higher mortality rates.

Hobbies – A person’s recreational habits are also examined when pricing an insurance policy since dangerous hobbies can result in more injuries or deaths. An individual that participates in skydiving or scuba diving will pay more for a life insurance policy than if they did not do those activities.

Length of Term – The length of the insurance policy will play a big role in determining the rate. Since a level term policy is guaranteed to never increase in premium during the policy term, the longer the term the higher the premium since the individual is statistically more likely to die. (For more information, read our “Understanding Level Term Life Insurance: What is it and how does it work?“).

Amount of Coverage – This one is pretty simple: the more coverage you have the more the premium. If the insured were to die, this would be the amount the insurance company would be required to pay out to the beneficiaries.

An insurance company may look at all of these factors as well as numerous others when determining a premium payment for a policy. It is important to remember that the healthier you are and the lower risk your lifestyle is, the lower your premiums will generally be.

Read more:

• Paying Life Insurance Premiums
• Average Cost of Life Insurance

What Insurance Company You Should Use

With life insurance being such a competitive industry, there are numerous companies willing to fight for your business and offer you their services. It is important to find someone that will help assess your individual needs and not just throw a generic policy in your direction.

When selecting a company to work with, be sure to find an established firm with good business practices and responsible agents. If you are very knowledgeable about life insurance and confident in your ability to select the right coverage type and amount, you can go with a direct insurer and bypass an agent altogether.

We recommend starting with an insurance broker. They can provide quotes from multiple companies and can work as a single point of contact while exploring different options. Our recommended broker is:

SureHits Life

Read more: Physicians Mutual Insurance Review & Complaints: Life and Health Insurance

Case Studies: Life Insurance Coverage in Real-Life Scenarios

Case Study 1: Married Couple

John and Lisa are a married couple with two children. They both work and rely on each other’s income to maintain their lifestyle. In the unfortunate event of one of them passing away, the surviving spouse would face significant financial challenges. Life insurance would provide them with a financial safety net to cover funeral costs and replace the lost income.

Read more: How To Correctly Update Insurance After Getting Married: An Expert Guide

Case Study 2: Couple with Children

Sarah and Michael have three children and both work to support their family. They understand the financial responsibilities of raising children, including the cost of education. Life insurance would ensure that their children’s needs are met, even if one of them were to pass away. The death benefit can help cover living expenses and future educational expenses.

Case Study 3: Single with Children

Emily is a single parent with two young children. She is the sole provider for her family, and her children rely entirely on her income. To secure their future, Emily recognizes the importance of having sufficient life insurance coverage. It would provide a financial safety net to support her children’s needs and maintain their quality of life.

Case Study 4: Business Partners

Mark and David are business partners running a small company together. Their business’s success depends on both of them equally. If one of them were to pass away unexpectedly, the surviving partner may struggle to continue the business without a financial burden. Life insurance can help cover financial obligations and ensure the business’s continuity.

Life Insurance Coverage: The Bottom Line

How much life insurance you need depends on your unique situation. Whether you’re married, running a business, or want to leave a financial safety net, getting the right life insurance coverage is essential.

Compare coverage and rates from multiple companies to find the right fit for you. (For more information, read our “How Life Insurance Works: Understanding Your Coverage and Claims”).