How life, disability, and annuities actually work.
Term covers a stretch of years when someone depends on you. Disability replaces income you were still counting on. Permanent life is for a need that outlives any term. An annuity is about turning money into a paycheck.
Four questions to answer before you buy anything.
Someone dies and the paycheck stops. Someone is alive but can’t work. Someone retires and needs the income to last. Name the risk before anyone shows you a product.
Mortgage, tuition, groceries, a business note, a retirement paycheck. Write down the monthly number. All three of these products get priced against that, not against a multiple of your salary.
Group life, group disability, Social Security, a pension, an old policy, cash you’d really spend. Subtract all of it. What’s left is what you’re buying.
Death is life insurance. Can’t work is disability. Income that has to last is an annuity. If two risks are real, size each one separately — one policy pretending to do all three jobs does none of them well.
What each one is built to do.
Pays out so a household or a business can keep running without you. Term does that for a set number of years; permanent does it for life, and some versions build cash value. Either way, size it to the paycheck and the years someone leans on it.
Replaces earnings you were still expecting if you can’t work. How the policy defines “disabled” is the whole product — read that sentence twice. Most people should price this before adding more term life.
Turns a pile of money into a stream of income. What changes from one to the next is what’s guaranteed, how interest is credited, and what it costs to take your money back out.
What the premium is standing in front of.
Three made-up households, so you can see the size of the hole. These aren’t quotes and they aren’t tied to any carrier.
Life
The hole
- Mortgage remaining
- $420,000
- Childcare and school still ahead
- $180,000
- Retirement savings that still have to happen
- $80,000
- Cash they would actually use
- −$80,000
- Gap
- $600,000
In this example a 20-year, $600,000 term stands in front of that gap. Hypothetical preferred-class premium runs about $450 a year — $9,000 if they pay all twenty. The point is that the surviving earner is not covering $600,000 out of one remaining paycheck.
Where this goes wrong: buying a flat $1,000,000 because it’s a round number, or stretching to 30 years because 20 felt short.
Disability
The hole
- Monthly income that has to continue
- $20,000
- Group LTD that actually pays (taxable, capped)
- −$8,000
- Gap
- $12,000 a month
Long-term disability is what covers that gap while the person is still alive. This is hypothetical individual coverage on the leftover $12,000. Read your group policy before you assume it handles this: it often flips to any-occupation after a short period, it’s capped, it’s taxable when the employer pays the premium, and it ends when the job does.
Where this goes wrong: stacking more term life while this monthly hole sits open.
Annuities
The hole
- Money meant to become income later
- $500,000
- Income wanted from it
- $2,500 a month
- Years they may need that income
- 25+
An annuity turns that lump into a stream. Three things decide whether it’s any good: what’s actually guaranteed, how interest gets credited, and how many years it costs you to walk away.
Where this goes wrong: reading the illustrated column and skipping the surrender schedule.
Last reviewed August 2026. Figures are illustrative rather than sourced pricing.
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This prices life insurance across several insurers. It isn’t a recommendation. I’m a licensed Texas agent and I may be paid if you buy.
Three that come up most.
Size it to the hole. Debts that would still be there, the years someone depends on that paycheck, the savings that stop happening if the earner is gone — minus cash they’d actually spend. A round million isn’t a method, it’s a guess. And 20 years is only the right term if the dependence runs about that long.