Your greatest asset may not be your home, your business or your retirement savings. Most likely, it is your ability to earn an income by working. How would your family cope if you were suddenly unable to do that?
Life insurance is primarily designed to pay a “death benefit” in the event that a person dies unexpectedly, so that the income they otherwise would have brought to the family can be replaced. There are also other uses for life insurance, such as estate tax planning.
If you look at life insurance as income replacement, you will realize that your life insurance needs change over the course of your life. As a young person with no dependents, your need for life insurance is very small. As we mature and people come to depend on us, such as a spouse and children, our needs grow. Then, as we approach retirement, our future expectations of income shrink, as do the needs of our children as they (hopefully!) become self-sufficient. For most people, term life insurance or a combination of term and permanent insurance is most appropriate.
Disability insurance is designed to replace lost income as well, but it pays out if you are injured, sick or otherwise unable to work. Short term disability insurance can help get you through temporary injuries, and long term disability coverage is designed to keep you and your family going in the event that you’re unable to work for a period of several years.