Term Life Insurance: How Much You Need, How to Buy It, and What to Avoid

Life Insurance Is Not an Investment

Life insurance is a temporary hedge against catastrophic income loss. If you die during your peak earning years, your dependents lose the income, benefits, and household services you provide. Term life insurance replaces that economic value for the years it is needed. It is not a retirement account, a savings plan, or a wealth-building strategy. For why not, see the Don't Mix Insurance With Investing guide.

I personally used Policygenius to buy a $3 million, 25-year level term policy. It took about 30 minutes to compare quotes, a phone interview, a medical exam, and a few weeks for underwriting. The annual premium is a fraction of what a comparable whole life policy would cost, and the $3 million death benefit is precisely sized to the economic gap my family would face.

Who Needs Term Life Insurance

• Parents of minor children. This is the most common and most important use case. If your income supports your family, your death creates a financial crisis. Term life covers the gap until the children are independent.
• Couples who rely on two incomes. If the household cannot sustain its lifestyle on one income, both partners need coverage.
• Homeowners with a large mortgage. A surviving spouse who cannot comfortably carry the mortgage needs the payoff covered.
• People supporting aging parents or a disabled dependent. The financial obligation is real and potentially lifelong.
• Business owners who need key-person or buy-sell coverage. The Insurance Information Institute notes term is a good fit when the purpose is to offset losses from a key employee's death.

Who Does Not Need It

• Single people with no dependents and enough assets to cover final expenses. There is no income loss to insure against.
• Retirees with independent children whose surviving spouse is financially secure from pensions, Social Security, and investments.
• People whose estate is large enough that no one is economically exposed to their death.

How Much Coverage You Need

Do not use the "10x salary" rule. It is a lazy shortcut that has nothing to do with your actual financial situation. The III explicitly warns that many people are underinsured because they use salary multiples instead of walking through actual needs and existing resources.

Use a needs-based method instead:

Coverage needed = income replacement + debts + education + final expenses - existing coverage - liquid assets - SS survivor benefits

Calculate Your Coverage Gap

Use the calculator below to estimate your actual coverage need. It produces a conservative, baseline, and robust range, not a single number.

Why Not to Rely on Employer Life Insurance

Employer-provided group life insurance is a useful supplement, not a foundation. The NAIC warns:

• Workplace coverage is often less than you need. A common employer benefit is 1-2x salary, which is far below the needs-based calculation for most families with dependents.
• If you leave the employer, you may not be able to take the coverage with you. III notes that job-linked death benefits are not wise to count on because you might die after changing jobs.
• COBRA does not cover life insurance. The Department of Labor notes that COBRA continuation applies to group health plans, not plans that provide only life insurance.
• Coverage above $50,000 creates taxable imputed income. The IRS says employer-provided group-term life above $50K is subject to Social Security and Medicare tax.

The fix: buy your core coverage as an individual term policy that survives job changes. Keep employer coverage as extra on top.

How to Buy Term Life Insurance

1. Model the amount and term first. Use the calculator above or a similar needs-based analysis.
2. Compare quotes across multiple carriers. Quotes can vary significantly. Use an independent marketplace (Policygenius, Quotacy, or similar) or get direct quotes from multiple insurers. NAIC notes that buying online is not necessarily cheaper; you often pay the same premium either way.
3. Choose level term from a financially strong insurer. Level term means the premium stays the same for the entire term. Check the insurer's AM Best or S&P rating.
4. Consider fully underwritten policies. No-exam policies are convenient but NAIC notes they usually cost more and provide less coverage than fully underwritten policies. If you are healthy, the medical exam saves you money.
5. Keep employer coverage as supplemental. Do not count it as your primary protection.

What to Watch Out For

• Renewability terms. What happens after the guaranteed level period? Premiums can increase dramatically. NAIC warns to ask what premiums will be upon renewal.
• Convertibility. A convertible term policy lets you convert to permanent insurance without a medical exam. III recommends this feature as a safety valve if your needs change.
• Replacing an existing policy. NAIC's replacement model warns that replacing a policy can mean paying new acquisition costs, incurring surrender charges on the old policy, and resetting the 2-year contestability period. Do not replace coverage casually.
• Minor children as beneficiaries. NAIC notes insurers generally will not pay directly to a minor. If your children are intended beneficiaries, name a trust or set up a custodial arrangement.
• Unnecessary riders. Riders increase premiums. Evaluate whether each rider solves a real problem before accepting it.

Social Security Survivor Benefits

Social Security provides survivor benefits to children of deceased workers (up to 75% of the parent's basic benefit) and to widowed parents caring for children under 16. In March 2025, the average monthly benefit for children of deceased workers was about $1,137 and for widowed parents about $1,308.

These benefits meaningfully reduce the insurance need but usually do not come close to replacing a high earner's lost income. The calculator above includes a field for estimated annual survivor benefits.

Frequently Asked Questions

How much life insurance do I need?

Use the needs-based method: income replacement for years your dependents need it, plus debts, education, and final expenses, minus existing coverage, liquid assets, and Social Security survivor benefits. The "10x salary" rule is a poor substitute for this analysis.

What term length should I choose?

Match the term to the duration of the need. If your youngest child is 3, a 20-25 year term covers them through independence. If your mortgage has 22 years remaining, a 25-year term covers it. Common choices are 15, 20, 25, and 30 years.

Why not whole life?

Whole life bundles insurance with a savings component, resulting in higher premiums and often a smaller death benefit for the same dollar outlay. For most families, term life plus separate investing in transparent low-cost accounts is simpler, cheaper, and more flexible. See the companion guide for the full analysis.

Is employer life insurance enough?

Almost never. Employer coverage is typically 1-2x salary, which is far below the needs-based calculation for families with dependents. It also ends when you leave the job. Buy individual term as your core and keep employer coverage as extra.

Should I get a medical exam?

If you are healthy, yes. Fully underwritten policies with a medical exam typically cost less and offer more coverage than no-exam policies. No-exam is a convenience feature, not automatically a better deal.

Key Takeaways

• Life insurance is for replacing economic value, not building wealth. Buy it to protect dependents, not to invest.
• Use the needs-based method, not salary multiples. The calculator above produces a coverage range based on your actual financial gap.
• Default to level term. Match the term to the duration of the need (youngest child's independence, mortgage payoff, or spouse's retirement).
• Do not rely on employer coverage. It is supplemental, not portable, and usually insufficient.
• Do not mix insurance with investing. Term life for the risk, index funds for the wealth building. Keep them separate.
• Compare quotes and choose a strong insurer. Use an independent marketplace to shop across carriers.

Related Guides

• Don't Mix Insurance With Investing — why permanent life insurance is generally not a good investment vehicle
• FIRE Calculator — compute your FI number to understand when insurance needs decrease
• The Tax-Advantaged Trifecta — where to invest the premium savings from choosing term over permanent
• Where to Park Your Cash — emergency fund sizing for the surviving spouse