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Life Insurance 101

The basics, explained simply. No jargon, just the facts you need to protect your family.

What is life insurance, really?

At its core, life insurance is a contract between you and an insurance company. You pay a monthly fee (premium), and in exchange, the company promises to pay a lump sum of money (death benefit) to your chosen people (beneficiaries) if you pass away while the policy is active.

It's not about putting a price on your life—it's about making sure the people you love don't inherit your debts or struggle to pay the bills when you're gone.

Term vs. Whole Life

There are two main types of life insurance you'll encounter. Here's the breakdown:

T

Term Life

  • ✓Lasts for a specific time (10-30 years)
  • ✓Most affordable option
  • ✓Pure protection (no cash value)
  • ✓Best for most families
W

Whole Life

  • ✓Lasts your entire life
  • ✓More expensive premiums
  • ✓Builds cash value over time
  • ✓Good for estate planning

How much coverage do I need?

A common rule of thumb is to get 10x your annual income. This generally provides enough of a cushion for your family to replace your income for a decade, pay off debts, and handle future expenses like college tuition.

The DIME Method

For a more precise number, add up:

  • Debt: Mortgage, credit cards, student loans.
  • Income: Annual salary × years your family needs support.
  • Mortgage: Balance remaining (if not included in Debt).
  • Education: Estimated cost for your children's college.

Subtract any existing savings or insurance, and that's your target number.

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