Life Insurance
Term life insurance, also called temporary insurance, covers a person against death for a limited time, or term. For example, the term might be until retirement.
Whole life insurance, also called permanent insurance, is permanent and does not expire (assuming you continue to pay the premium). It provides coverage similar to term life insurance, but it also provides an investment vehicle. A portion of the premium goes for life insurance, while the rest goes into an investment account. This account can be either an interest bearing account or a variable (stocks and bonds) investment account.
Which is better? Young families with large financial obligations are usually better off with term life insurance policies for income protection prior to retirement. The substantially lower premiums enable them to purchase sufficient coverage to protect against loss of income. Any discretionary investment funds can be placed in other vehicles such as Health Savings Accounts (HSA) that will generate better tax savings and returns than life insurance policies. Whole life or last to die insurance is often purchased by people for tax and estate planning purposes.
How much? Adding a zero to your annual income and purchasing that amount in a level term insurance until retirement should allow your family to invest the benefits and continue to receive your annual income. At retirement, your need for income replacement in the form of life insurance decreases substantially unless there is a estate planning need as previously mentioned.
Most individuals don't need more life insurance; they need disability and long-term care insurance. Until age 65, you have a three times greater chance of suffering a long-term disability than of dying, and you have virtually a 100 percent chance of needing assisted-living care as you age.