Life Insurance: Financial Q&A

Term life insurance provides coverage for a specific period, such as 10, 20, or 30 years. If you pass away during the term, your beneficiary receives the death benefit. If the term ends and you are still alive, the policy expires with no payout. Term insurance is generally the least expensive type of coverage because it does not build cash value and does not insure you for your entire life. It is often used to protect income during working years or to cover temporary needs such as raising children or paying off a mortgage.

Whole life insurance provides lifelong coverage as long as premiums are paid. It includes a guaranteed death benefit and a cash value component that grows over time. Premiums are higher than term insurance because the insurer is guaranteeing coverage for your entire life and building a savings component within the policy. Whole life insurance is often used for long‑term planning, legacy goals, or situations where guaranteed coverage is important.

Universal life insurance provides lifelong coverage with flexible premiums and a cash value component that grows based on interest rates or market‑linked crediting methods. You can adjust premiums and death benefits within certain limits, which makes universal life more flexible than whole life. However, flexibility also means the policy requires monitoring, because insufficient funding or poor crediting performance can cause the policy to lapse. Universal life is often used when long‑term coverage is needed but the policyholder wants the ability to adjust premiums over time.

Variable life insurance provides lifelong coverage and allows you to invest the cash value in market‑based subaccounts. The performance of these investments affects the cash value and may affect the long‑term viability of the policy. Because the cash value is tied to market performance, variable life carries more risk than whole or universal life. It is typically used by individuals who want permanent coverage and are comfortable with investment risk inside the policy.

When a term policy ends, coverage stops. Some insurers allow you to renew the policy at the end of the term, but the premium will be based on your current age and health, which often makes renewal expensive. Many term policies also include a conversion option that allows you to convert the term policy into a permanent policy without medical underwriting. Conversion can be useful if your health has changed and you still need coverage, but the cost will be higher than term insurance.

The amount of life insurance you need depends on your income, debts, family situation, and long‑term goals. Many people choose coverage that replaces several years of income, pays off major debts, and provides financial stability for dependents. Others use life insurance to create liquidity for estate planning, especially when assets are illiquid or when estate taxes may apply. This is why life insurance should be considered as part of a comprehensive financial plan, and a competent financial advisor should be able to complete a life insurance needs analysis as part of your financial plan.

You can often change your life insurance by adjusting coverage, converting term policies to permanent policies, or replacing an existing policy with a new one. Changing coverage may require underwriting, depending on the type of change and the insurer’s rules. If your health has changed, replacing a policy may be more expensive or may not be possible. Permanent policies can sometimes be restructured through riders or premium adjustments, but these changes should be evaluated carefully because they may affect long‑term performance. Also, your need for life insurance changes as your life changes. For example, getting married, buying a home, or having children may lead you to change your life insurance coverage.

Life insurance death benefits are generally not taxable as income to the beneficiary. However, estate taxes may apply if the policy is owned in a way that causes the death benefit to be included in your taxable estate. Some people use irrevocable life insurance trusts (ILITs) to keep the death benefit outside the estate and create liquidity for estate taxes.

Company‑provided life insurance usually ends when your employment ends. Some employers offer the option to convert the coverage to an individual policy, but conversion typically requires paying the full premium and may be more expensive than purchasing a new policy. Employer‑provided coverage is often term insurance and does not build cash value. If you rely heavily on employer‑provided coverage, it may be important to maintain your own policy so coverage continues even if you change jobs. Changing jobs has many financial implications; learn more about changing jobs here.

Yes. Life insurance is often used to fund buy‑sell agreements, protect business continuity, or provide liquidity if a business owner passes away. In a buy‑sell agreement, life insurance can provide the funds needed for remaining owners to purchase the deceased owner’s share of the business.