Term insurance pays a lump sum if the policyholder dies during the policy term. It has no maturity value, which is exactly why it is the cheapest way to buy a large cover. Three ways to size the cover 1. Income multiple — 10 to 15 times annual income. Fast, crude, ignores liabilities. 2. Needs analysis — replace household expenses until your youngest child is financially independent, add outstanding loans, add goal costs (education, marriage), subtract existing assets and existing cover. 3. Human capital — present value of future earnings, discounted. Most precise, most assumption-heavy. Term length beats cover inflation worry Choose a term that ends when your dependants stop depending on you, usually age 60-65. Buying cover to age 85 raises premiums substantially for years when there is often no income to replace. Riders worth considering Waiver of premium on disability, and accidental total permanent disability. Critical illness is usually better bought as a standalone indemnity or benefit policy so it can be revised independently. Disclosure is the whole game Non-disclosure of smoking, income, occupation or medical history is the leading cause of repudiated death claims. Declare everything, take the medical tests, and accept the loaded premium if offered.
This guide is published for education and research. MoneyMust is not a broker or an investment adviser, and nothing here is a recommendation to buy a specific product.