Whether you’re raising a family, buying a home, planning for the future, or simply reviewing your financial goals, understanding how life insurance works is an important step.
Key Life Insurance Terms to Know
Before exploring coverage options, it helps to understand a few common life insurance terms.
Beneficiaries:
Your beneficiaries are the people or entities who receive the policy’s death benefit after you pass away. Beneficiaries can include a spouse, children, parents, business partners, or others you choose.
Premium:
Your premium is the cost of the life insurance policy. Premiums may be paid monthly or annually and are based on factors like:
- Your age
- Your health
- The amount of coverage you purchase
- The type and length of the policy
Death Benefit:
The death benefit is the amount paid to your beneficiaries upon your death. You select the coverage amount when purchasing the policy, and in most cases, the death benefit is income-tax-free.
How Much Life Insurance Do You Need?
The right amount of life insurance depends on your financial situation, family responsibilities, and long-term goals.
Many financial professionals recommend carrying coverage equal to roughly 10 to 15 times your annual income. At a minimum, it’s important to consider enough coverage to help pay for funeral expenses, debts, and immediate financial obligations.
The average funeral can cost several thousand dollars, and many families are also balancing mortgages, vehicle loans, student loans, or other ongoing expenses.
As you evaluate your needs, consider questions like:
- How much income would your family need to replace?
- Would your spouse or partner be able to manage expenses on their own?
- What debts or financial obligations would remain?
- Are there future expenses you want to help cover, such as college tuition or childcare?
Your coverage needs will likely also change over time as your family, finances, and goals evolve.
Choosing Coverage That Fits Your Budget
One of the most important things to remember about life insurance is that it should be sustainable over the long term.
A smaller policy with affordable premiums is often better than purchasing more coverage than your budget can realistically support. If premiums become difficult to maintain, there’s a risk the policy could lapse due to missed payments.
The goal is to find coverage that balances meaningful financial protection with affordability.
Understanding the Main Types of Life Insurance
There are two primary categories of life insurance: term life insurance and permanent life insurance.
Both provide financial protection, but they work differently and serve different needs.
Term Life Insurance
Term life insurance is generally the simplest and most affordable type of life insurance.
With a term policy, coverage lasts for a specific period of time, usually 10, 15, 20, or 30 years. If you pass away while the policy is active, your beneficiaries receive the death benefit.
For example, if you purchase a 20-year term life insurance policy and pass away during that 20-year period, your beneficiaries will generally receive the policy’s death benefit. If the policy expires before your death, no benefit would be paid unless the policy was renewed or converted.
Because term life focuses strictly on protection for a set period, premiums are often more affordable than those for permanent life insurance.
Many families choose term life insurance to help cover major financial responsibilities during their working years, such as:
- Raising children
- Paying off a mortgage
- Replacing income
- Managing other long-term expenses
Permanent Life Insurance
Permanent life insurance is designed to provide lifelong coverage rather than coverage for a set term. In addition to paying a death benefit, permanent life insurance policies also build cash value over time that can potentially be borrowed against or accessed during your lifetime.
Common types of permanent life insurance include:
- Whole life insurance
- Universal life insurance
- Variable universal life insurance
Permanent life insurance is typically more expensive than term coverage, but it may be a good fit for individuals who:
- Want long-term or lifelong protection
- Prefer predictable premiums
- Are interested in building cash value over time
- Want additional financial planning flexibility
Some families begin with term life insurance while children are younger or financial obligations are higher, then later convert or transition to permanent coverage as their needs change.
Why Reviewing Your Coverage Matters
Life insurance isn’t something you purchase once and never revisit. Major life changes can affect how much coverage you need, including:
- Marriage
- Having children
- Buying a home
- Career or income changes
- Paying off significant debt
Reviewing your coverage periodically can help ensure your policy still aligns with your family’s financial needs and goals.
Protect the People Who Matter Most
While thinking about life insurance can feel uncomfortable, having the right coverage in place can provide valuable peace of mind for both you and your family.
At Leavitt Group Texas Select, our team can help you evaluate your options, understand the differences between policy types, and determine coverage that fits your goals and budget.
If you’ve been putting off reviewing your life insurance needs, or aren’t sure whether your current coverage is enough, now is a great time to start the conversation.
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