He proposes the image for only the cover but I want to be able to put a cover image on promotional material (not his original image). Any suggestions on how to add this?
Depends on how it's worded, but you can ask to explicitly add a clause stating that you have the right to use the final cover, in whole or in part, to promote and market the book.
He wants to have it for a 1st edition. Would it no longer be a first edition if I correct a typo?
You may want to clarify if that covers e-books as well as print, or ask to reword that section, as "1st edition" is somewhat ambiguous in the age of e-publishing. (You may have a first paperback edition, a first Kindle edition, a first ePub edition... how, and whether, that's covered is something you'd want to make clear.)
And no, fixing typos does not a new edition make.
And he asks me to set a term of use but I have no idea what to set.
A decade doesn't seem too unreasonable. I know most people are going to reflexively say "perpetuity" here, but trends in cover designs change, and the whole "1st edition" thing means you'd have to re-license (or pick new art) for a 10th anniversary edition by then, or whatever, anyway.