Life insurance

Term life covers a fixed period — commonly 10, 20 or 30 years — and pays out only if you die within it. It has no cash value and nothing is returned at the end. It is the cheapest way to hold a large amount of coverage, which is why it fits obligations that end: a mortgage, the years until children are independent.

Whole life covers you for life as long as premiums are paid, and builds a cash value you can borrow against. It costs substantially more than term for the same death benefit, because it is designed never to expire.

Universal life is permanent cover with adjustable premiums and death benefit. That flexibility is the point and also the risk: if the policy is underfunded or the credited interest is lower than illustrated, it can require more money later than the original illustration suggested.

A common answer is a mix — enough term to cover the years of greatest obligation, and a smaller permanent policy for costs that will exist whenever they arrive.

The rules of thumb — ten times income, say — are quick and usually wrong in one direction or the other. Someone with no mortgage and grown children needs far less than the multiple suggests; someone with a large mortgage and young children often needs more.

The arithmetic that actually applies is a subtraction:

Add up what would need paying — income to replace and for how many years, the mortgage balance, other debts, education you intend to fund, and final expenses. Then subtract what already exists: coverage through work, any policy you already hold, and liquid savings. What is left is the gap.

Employer coverage deserves a second look in that subtraction. It usually ends when the job does, and it is often a multiple of salary that falls well short of a mortgage.

Age and health do most of the work, and age is the one that only moves in one direction. Carriers rate on age at application, so the same policy costs more every year you wait.

Then: whether you use tobacco, your height and weight, your family medical history, and in most states your sex. Some policies require a medical exam and some do not — the ones that skip it usually charge more for the privilege, or cover less.

Occupation and hobbies matter for a smaller number of people, and honest answers matter for everyone. A policy issued on incorrect information can be contested, which is the one failure mode that leaves a family with nothing at the moment they need it most.

Replacing a policy is sometimes right and often not. An older policy was priced at a younger age and may be difficult to improve on; a new one starts a fresh contestability period, during which a claim can be examined more closely.

What is usually worth doing is a review: checking the coverage still matches what it was bought for, that the beneficiaries are current, and — for permanent policies — that it is still funded the way the original illustration assumed.