Choosing between term and permanent coverage
Identifying the appropriate type of insurance—term or permanent—is the first consideration in choosing coverage. If your insurance need is for your lifetime, then permanent insurance, such as universal life insurance may be an appropriate solution. If your insurance need is primarily for a specific period of time, such as your working years, then term life insurance may be an appropriate solution. It is important to choose a coverage period that will meet your life insurance needs to ensure that the people important to you are protected.
Choosing coverage amount
In addition to your coverage period, the coverage amount is another important consideration. The coverage amount is how much will be paid to your beneficiaries. Your coverage amount will depend on the need you are trying to meet, but these are some general factors to consider:
- Your potential income
- Your assets
- Your liabilities (such as debts)
- Any existing insurance (individually owned or through work)
- Other costs your family is expected to face
Determining coverage amount and duration by life event
Major events in your life can be good opportunities to make your initial life insurance purchase or review your current coverage.
Use the table below to help determine your coverage amount and coverage period according to the milestones you have reached or that you will in the near future.
|Consider life insurance when you||Consider an amount that covers||Consider a coverage period equal to|
|Get married||Student loans or other debts, income, and home expenses||Any duration|
|Buy or improve a home||Mortgage and/or home equity loan (Typically, insurance is purchased to pay off the principal amount of the loans but not future interest.)||The term of your loan|
|Have a family to support||Family income needs and new debts||The time when you expect you will no longer have dependents|
|Change jobs||Potential income based on your new salary and any gaps in insurance provided by your new employer||The length of time you expect to need to earn income|
|Start a business||Expected revenue, debts and future expenses, and maintenance of the general business structure||Lifetime or the length of time you anticipate owning the business|
|Plan a child's college education||Future college expenses (e.g., private college, public university, graduate programs)||The anticipated graduation date of the child|
|Plan your estate||Funeral and estate expenses, including estate tax, wealth transfer||Your lifetime|
It is also recommended that you review your life insurance coverage during the routine update of your overall financial plan.
When buying life insurance, there’s no substitute for a thorough analysis of your personal situation. Fidelity can help you determine an adequate level of life insurance protection.
If you’ve decided on term coverage to replace your potential income, you can also use our Term Life Insurance Needs Estimator to determine an approximate coverage amount.