The cost misconception that keeps families uninsured

LIMRA's 2025 Insurance Barometer Study found that about 51% of American adults owned life insurance, and that roughly 100 million U.S. adults — about 40% of consumers — say they need life insurance or need more of it. That need-gap improved two points year over year, from 42%.

The reason is not mainly affordability. LIMRA found that healthy adults aged 18 to 30 overestimated the cost of a $250,000, 20-year term policy by roughly 10 to 12 times its actual price. People are not declining coverage after weighing it against the budget; they are declining it against a price that does not exist.

Real term pricing depends on age, sex, health, tobacco use, family history, driving record and face amount. The only figure that means anything is the one you are quoted after underwriting — which is free to obtain.

Term life: what it is and what it is not

Term life covers you for a fixed number of years, commonly 10, 15, 20 or 30. If you die during the term, it pays the death benefit to your beneficiaries, generally income-tax-free. If you outlive the term, it pays nothing and ends.

That is the whole product. No cash value, no investment account, no borrowing against it. It is pure protection, which is why it costs a fraction of permanent coverage for the same death benefit.

Term suits the shape of most households' actual risk. The obligations that would devastate your family if your income vanished — the mortgage, the years until the children are independent, the spouse's runway to retirement — are temporary. They shrink every year. A 30-year term policy bought when your first child is born expires at roughly the point those obligations do.

Two features worth checking before you buy. First, level premium: confirm the premium is guaranteed level for the full term rather than annually renewable. Second, convertibility: many term policies let you convert to a permanent policy from the same insurer with no new medical underwriting, up to a stated age or year. If your health changes during the term, that clause becomes extremely valuable, and its terms vary widely between insurers.

Permanent life: the legitimate uses and the oversold ones

Permanent policies — whole life, universal life, variable universal life, indexed universal life — are designed to last your lifetime and accumulate cash value. Premiums run several times higher than term for the same death benefit, because part of every payment funds the cash value and the cost of insuring you at advanced ages.

Where permanent genuinely fits:

  • Estate liquidity. An estate large enough to face taxes, or one whose value is tied up in illiquid assets such as a farm or a business, needs cash at death rather than a forced sale.
  • Business succession. Funding a buy-sell agreement so surviving partners can purchase a deceased partner's share.
  • A lifelong dependent. A child with a disability who will need support after you are gone. This is a permanent need, so it needs permanent coverage, usually structured with a special needs trust as beneficiary.
  • Charitable and legacy planning where a guaranteed death benefit is the point.

Where it is oversold: as an investment or a retirement vehicle to someone who is still underinsured on term. The cash value's early-year growth is consumed by commissions and policy charges, surrender charges typically run for years, and the internal costs are frequently opaque. If you are considering permanent coverage as an investment, ask for an illustration showing guaranteed rather than projected values, and compare the guaranteed column against buying term and investing the difference.

None of this makes permanent insurance a bad product. It makes it a specific product for specific problems.

Sizing the coverage: a method, not a multiple

"Ten times income" is a marketing heuristic. Build the number instead.

Step 1 — Debts that would remain. Outstanding mortgage balance, car loans, private student loans, credit balances. Note that federal student loans are generally discharged at death and some private ones are not.

Step 2 — Income replacement. Decide what annual amount your household would need without your income, then multiply by the number of years it would be needed — until your youngest is independent, or until your spouse reaches retirement, whichever is longer.

Step 3 — Future obligations you intend to fund. Education costs, care for an ageing parent, a business obligation.

Step 4 — Final expenses and buffer. Funeral costs, medical bills, estate settlement, and enough cushion that no one has to make financial decisions in the first year.

Step 5 — Subtract what already exists. Liquid savings and investments, existing individual policies, employer group life (which usually ends with the job), and Social Security survivor benefits where your family qualifies.

The remainder is your gap. Round up. Term is priced per thousand of coverage, and the marginal cost of the last $100,000 is small compared to the cost of being short.

One frequently missed case: a stay-at-home parent. Their economic contribution — childcare, household management, care work — has a replacement cost that appears on no pay stub, and losing it produces immediate, large expenses. Insuring both parents is the norm for a reason.

Underwriting, honestly

Fully underwritten is the traditional path: application, phone interview, paramedical exam with blood and urine, prescription database check, MIB check and motor vehicle record. It takes weeks and produces the lowest price for healthy applicants.

Accelerated underwriting skips the exam for applicants who fit a clean profile within certain age and face-amount bands, relying on data instead. Days rather than weeks, at competitive pricing.

Simplified issue asks health questions but requires no exam, at a higher price and lower coverage limits. Guaranteed issue asks nothing at all, offers a small face amount with a two- or three-year graded death benefit, and costs the most per dollar of coverage. It exists for people who cannot qualify otherwise.

Three rules regardless of path. Answer every question truthfully — material misrepresentation during the contestability period, typically the first two policy years, can void the claim, which is the worst possible outcome. Do not cancel an existing policy until the new one is issued and in force. And name a contingent beneficiary, then review both beneficiaries after every marriage, divorce, birth or death, because the beneficiary designation controls regardless of what your will says.

Frequently asked questions

Rarely. Group coverage is commonly one or two times salary, which does not cover a mortgage plus years of income replacement, and it usually ends when the job does — often at the moment your health has changed and individual coverage has become expensive or unavailable.
Match the product to the duration of the need. Temporary obligations — mortgage, dependent children, a spouse's runway to retirement — are term-shaped. Permanent needs — estate liquidity, business succession, a lifelong dependent — are permanent-shaped. Buying permanent coverage while still underinsured on term is the common and expensive mistake.
Long enough to outlast the obligation. A common approach is to match the term to the years until your youngest child is independent, or to the remaining mortgage, whichever is longer. Some households layer two policies — a 30-year for the mortgage and a 20-year for the child-rearing years — so coverage steps down as obligations do.
Life insurance death benefits paid to a named beneficiary are generally received income-tax-free in the United States. Estate tax treatment is a separate question and depends on ownership of the policy and the size of the estate — worth raising with an estate attorney if your estate is large.

Sources

Every figure above is drawn from the following publications. Links open on the publisher's own site.

IW

InsureWiseHub editorial team

We write plain-language explainers about U.S. insurance and cite a primary source for every number. We do not sell insurance and we are not paid by insurers. Read our editorial policy.

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