Choose life insurance for the job it needs to do.

Life insurance pays money to the people you choose when you die. That’s not an easy thing to think about, and the choices, like term, whole and universal, can make it feel even harder.

Here’s a calmer way in. Before you compare policies, decide what the money needs to do. The right type, length and amount of coverage usually follow from that.

Start with the job

Life insurance is mostly about the people who depend on you. Common jobs include:

• Replacing income your household relies on.
• Paying off debts, like a mortgage, so your family doesn’t have to take them on or sell assets to cover them.
• Paying for future costs, like child care or college.
• Covering final expenses, such as medical bills and burial costs.

A few questions can help you name the job. How much of the household income do you provide? How might your family’s obligations change over time? And how many years will people depend on you?

Term life: coverage for a set time

Term life insurance covers you for a set period, such as 10 or 20 years. If you die during that term, it pays a death benefit to your beneficiaries. If you outlive the term, the coverage ends. Term policies generally don’t build cash value, and their premiums tend to be lower, especially when you’re younger.

Try to match the term to the job. If the goal is to support your kids until they’re grown, or to cover a mortgage until it’s paid off, a term that lasts about that long is a natural fit.

Questions to ask about a term policy:

• Can I renew it when the term ends? Premiums usually go up at each renewal.
• Is there an age when I can no longer renew?
• Can I convert it to permanent coverage later, and how long do I have to decide?

Permanent life: lifetime coverage with cash value

Permanent life insurance, which includes whole life and universal life, is designed to last your whole life as long as you keep the policy in force. It also includes cash value, a savings or investment feature you may be able to access while you’re alive.

That flexibility comes with trade-offs:

• Higher premiums. Permanent coverage tends to cost more than term.
• Slow early growth. Some policies build little cash value in the early years. Ask to see the policy’s cash value table.
• Loans cost your beneficiaries. If you borrow against the policy, any unpaid loan plus interest is subtracted from the death benefit.
• Withdrawals have limits. Taking cash out can leave too little to keep the policy going, which may mean paying premiums again or accepting a smaller death benefit.
• Leaving early can be costly. Ask about surrender penalties, which are charges for dropping the policy in its early years.
• Not everything is guaranteed. Ask which premiums and values are guaranteed and which can change.

Some people combine the two, using term coverage for the years they need protection most.

Estimate how much coverage you need

You don’t need a perfect number to start. A rough, high-level estimate works like this:

1. Add up what you’d want the money to cover: years of income, debts like a mortgage, future costs like college and final expenses.
2. Subtract what’s already available, such as savings, investments and any life insurance you already have.
3. Revisit the number as life changes, since inflation and a growing family can shift what you need.

You may hear rules of thumb based on a multiple of your income. They’re a starting point at best. Working through your own needs gives a clearer picture.

Name and update your beneficiaries

Your beneficiaries are the people or organizations who receive the death benefit.

• A primary beneficiary receives the benefit first. If you name more than one, it’s divided among them, so note the percentage each should get.
• A contingent beneficiary receives the benefit if a primary beneficiary dies before you do.
• If you want to leave money for a minor child, ask about setting up a trust.

Every few years, and after big changes like marriage, divorce or a new child, check that your beneficiaries are still the right ones.

Check the license before you buy

Your state insurance department keeps a list of the agents and companies licensed to do business in your state. Check both before you sign. Don’t buy a policy you don’t understand, keep any illustrations or booklets with your policy, and don’t cancel an existing policy until the new one is in place.

Your next step

Finish this sentence on paper: “If I died tomorrow, this money would need to ____ for about ____ years.” If you decide to talk with an insurer or agent, bring that sentence with you. It will keep the discussion focused on your needs.