You’ve built a solid financial life: a career, a home, a family. You’re saving diligently, maxing out retirement contributions, and investing. Your plan is on track for a comfortable retirement. But what’s often missing is a comprehensive risk management plan. This isn’t about investment risk; it’s about life risk—the chance that an unexpected event could derail your carefully constructed future.

This is where life insurance comes in. While it may seem complicated or unpleasant to think about, it’s critical when your family’s lifestyle depends on your salary. The two primary types of coverage are term life insurance and whole life insurance. Term life may be preferable because it’s significantly less expensive, covering you only for the period you need it, and leaving you more money to invest in assets with potentially higher returns.

Term Life Insurance: Coverage During Your Earning Years

Term life insurance is straightforward: it provides coverage for a specific period of time (a “term”) and then expires. If you pass away during the term, the policy pays the death benefit to your designated beneficiary. The main goal is to replace your salary and provide for your family during your working years.

This type of insurance is very inexpensive. Insurance companies employ actuaries who use decades of data to create predictive models. Because they know most people will outlive their term, they keep rates low enough to be affordable—often hundreds of dollars or less, depending on your health and age.

A common rule of thumb is to purchase coverage that is 10 to 15 times your salary, depending on your debt level. You only need coverage until major debts (like a mortgage) and big expenses (like college) are paid off. For instance, if you have a 20-year mortgage and young children, a 20-year term policy may be ideal.

Whole Life Insurance: Coverage for a Lifetime

Whole life insurance is a fundamentally different product. It’s called “whole” because as long as you pay the premium, the coverage never ends, and the annual premium generally stays the same for the entire time.

Because the term is indefinite and the price is fixed, actuaries must build in a significant cushion to ensure the insurance company remains profitable. This makes whole life policies very expensive, often costing thousands of dollars annually.

Whole life policies include an investment component known as cash value. This value grows slowly at a guaranteed, tax-deferred rate, which is why these policies are sometimes referred to as investments. Once cash value accumulates, you can borrow against it or surrender the policy for the cash. However, policy loans must be repaid with interest, or they will reduce the death benefit, and surrendering the policy ends your coverage.

The Core Purpose of Life Insurance

The primary purpose of life insurance is to replace your income and protect your family if you pass away. While whole life builds cash value and pays out a death benefit, it should not be viewed as an investment that can replace the returns you’d typically generate from a diversified portfolio and a solid savings plan.

It’s worth considering whether very expensive life insurance is necessary during retirement, when your expenses are typically lower. If you’ve achieved financial independence, your family won’t need a large death benefit. The ability to invest the money you save by choosing a term life policy over a whole life policy—or simply spend it on something you value—is often more beneficial than a lifetime of coverage.