Life Insurance

Life insurance answers a single question: if your income stopped tomorrow, how would the people who depend on it carry on? Everything else — the product names, the tax treatment, the investment element — is detail on top of that.

How much cover

A workable starting figure is the total of:

1. What is left on the mortgage and any other debt
2. Enough income to replace your earnings for the years the household needs
3. Education costs still to come
4. Funeral and estate costs

Then subtract savings and any cover already provided through work. The result is usually larger than people expect and cheaper than they expect.

Term, whole and universal

Term

Cover for a fixed number of years — often set to end when the mortgage does or the youngest child finishes education. It pays out only if you die during the term, which is why it is by far the cheapest way to buy a large sum insured.

Whole life

Permanent cover with a fixed premium and a cash value that builds slowly. More expensive for the same sum insured, and useful when the need does not have an end date.

Universal life

Permanent cover with flexible premiums and an adjustable death benefit. The flexibility is real, and so is the requirement to review it — a policy left unmonitored can consume its own cash value.

Riders worth understanding

• Accelerated death benefit — releases part of the sum insured after a terminal diagnosis, while it is still useful.
• Waiver of premium — keeps the policy in force if illness or injury stops you working.
• Child rider — a small amount of cover for children, attached to your policy.
• Guaranteed insurability — lets you buy more cover later without new health questions.

Name your beneficiaries, and check them after every marriage, divorce and birth. A payout follows the beneficiary form, not the will, and an out-of-date form is the most common way life cover ends up with the wrong person.