When you’re starting a family, money is tight. Along with diapers and day care, you may be trying to buy a home, pay off student loans, save for retirement and start a college fund—all at the same time. So if you’re thinking about buying life insurance (which is so important now that someone else depends on you), you’re probably going to want the most coverage you can get for the least amount of money since you’re already juggling so many financial priorities.

Typically, that means term insurance.

Term insurance is the most affordable type of insurance, which makes it an attractive option for young families. It’s also temporary. It provides death benefit coverage for only a specific period of time (often 10 or 20 years); and when the term ends, so does your coverage. It’s like renting an apartment: You pay rent for a period of time, and when the lease is up, that’s it.

Permanent life insurance (which includes whole life insurance) is more like owning a home. It’s yours for life. It’s also more expensive. But in addition to providing a death benefit, permanent life insurance builds equity (known as “cash value”) that grows tax deferred and can be easily accessed while you’re alive to help pay for other financial goals like launching a business, paying for a child’s college education or supplementing your retirement income*.

Which Is Right for You?

For many young families, the best approach may be a combination of both.

Term life insurance gives you affordable coverage during the critical years when you’re raising children and have a lot of big-ticket financial obligations that would need to be covered if you died prematurely.

Permanent life insurance gives you the added benefit of guaranteed cash value growth, which can become a significant financial asset and an important part of your plan to create financial security for your family. Plus, with permanent insurance, you’re covered for life.

If you think you can’t fit both into your budget right now, consider this: Many new families will start with mostly term insurance since it’s more affordable, plus a small amount of permanent life insurance, such as a $75,000 policy. And over time, as their income and budget grows, they will gradually convert some or all of their term insurance to permanent insurance so they can take maximum advantage of its benefits.

Life Insurance for Young Families: Tips for Success

If you want to consider a mix of term and permanent life insurance, keep this in mind:

  • Buy at least a little permanent life insurance early, when you’re young and healthy, and you’ll pay lower premiums. Plus, your policy will have more time to accumulate cash value.
  • When you choose term insurance, make sure it can eventually be converted to permanent insurance. Not all policies have that option.
  • Make sure your plan to buy life insurance is woven into your overall financial plan. Your financial plan should help you see your whole picture and how all the pieces (including your life insurance) work together.

Starting life as a family with a mix of term and permanent life insurance can give you the best of both worlds: You’ll have affordable coverage today with term insurance, and you’ll be establishing a foundation for your family’s long-term financial security with permanent life insurance.

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