Why Temporary Coverage Usually Comes First

Why term is often the starting point

Term life insurance covers a defined period rather than a whole lifetime. Because the carrier is only on risk during those years, the cost per dollar of coverage is low relative to permanent policies. That is why many families use term to cover the stretch when their income is carrying the most weight — typically the 20 to 30 years while children are at home and a mortgage is being paid.

How it works

You pay a level premium for a fixed period (10, 20, or 30 years). If you pass away during the term, the policy pays a death benefit that is generally received income-tax-free by beneficiaries. Certain situations — including estate inclusion and interest paid on delayed settlement — can change that. Confirm your own situation with a tax professional.

How much coverage

One common rule of thumb is 10 to 15 times your annual income, adjusted for debts, education goals, and your spouse's earning capacity. Rules of thumb are starting points, not recommendations — the right amount depends on your household's actual obligations.

When permanent coverage is the better fit

Term is not the right structure for every need. When the need does not expire, permanent coverage usually fits better:

• A lifelong need — final expenses, or a surviving spouse who will depend on the benefit whenever it arrives rather than only within the next 20 years.
• A special-needs dependent — care that continues for that person's lifetime, often coordinated with a trust.
• Estate liquidity — cash to settle taxes or equalize an inheritance so heirs are not forced to sell property or a business.
• Business continuation — funding a buy-sell agreement or key-person coverage that must be in force whenever the event occurs.

Many well-built plans hold both types, in different amounts, at different stages of life.

What it is not

Term life is not an investment. It is pure protection.