Types of Insurance: What You Need, What You Don’t and How to Compare
The main types of insurance explained — health, auto, home, renters, life, disability and umbrella — who needs each and how to compare policies fairly.
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Life Insurance
Protect the people who depend on your income.
Term vs. permanent life insurance
| Term life | Permanent (whole/universal) | |
|---|---|---|
| Coverage length | A set term (e.g., 10–30 years) | Lifetime, if premiums are paid |
| Cost | Lower | Much higher for the same death benefit |
| Cash value | None | Builds cash value over time |
| Best for | Income replacement while dependents rely on you | Lifelong needs, certain estate planning goals |
How much coverage do you need?
A simple approach adds up what your family would need if you died:
- Income replacement for the years your dependents would rely on it.
- Debts such as the mortgage and loans.
- Future goals like children’s education.
- Final expenses.
Then subtract existing savings, investments and other coverage. Many rules of thumb suggest several times your annual income, but a needs-based estimate is more accurate.
Buying a policy
Compare quotes for the same coverage amount and term, check the insurer’s financial strength ratings, and confirm the company and agent are licensed with your state insurance department. Review beneficiaries after major life events. See how life insurance fits into your broader plan in financial planning for beginners.
Frequently asked questions
Who needs life insurance?
Anyone whose death would create financial hardship for others — for example, parents of young children, a spouse who relies on your income, or co-signers on debts. Single people with no dependents often need little or none.
Is term or whole life insurance better?
Term life is usually far cheaper and covers a set period, such as 20 or 30 years, which fits most families’ needs. Permanent policies like whole life cost more and combine coverage with a cash value component; they suit specific estate or long-term needs.
Does employer life insurance count?
It helps, but group coverage is often limited (for example, one or two times salary) and may end if you leave the job. Many people supplement it with an individual term policy.
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Life Insurance guides
All guides →Financial Planning for Beginners: How to Make a Financial Plan
Financial planning for beginners: set goals, track net worth, budget, build an emergency fund, pay off debt, save for retirement and get insured.
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