Start from the need, not the premium
The usual sequence is backwards. Someone decides they can afford about fifteen thousand a year, and buys whatever sum assured that premium happens to purchase. The number that emerges bears no relationship to what the family would actually need.
The right sequence is to work out the need first, then find the cheapest honest way to cover it. For most people that means pure term insurance, because nothing else delivers a large enough sum assured at a premium a household can sustain.
Working out the number
Four components, and the arithmetic is not difficult:
- Income replacement. The annual amount your family would need, for the number of years they would need it. Deduct the share of your income you currently spend on yourself.
- Liabilities. Outstanding loans should be cleared, not serviced. Add the full balance.
- Committed lump sums. Education and weddings you intend to fund.
- Less existing assets. Investments already in place that could be drawn on, and cover you already hold.
The figure that emerges is usually several times what people expect. Our Human Life Value calculator runs this exact computation.
Why bundled policies fall short
Endowment, money-back and unit-linked policies combine cover with saving. The result is that the same premium buys a fraction of the sum assured — often a tenth of what a term plan would provide.
Separating the two — buying term insurance for protection and investing the difference separately — almost always produces both better cover and better returns. The main argument for the bundled version is that it forces you to keep paying. That is a real behavioural benefit, but it is an expensive way to buy discipline.
The things that decide whether a claim is paid
- Disclose everything. Medical history, habits, family history, other policies. Non-disclosure is the leading cause of a contested claim.
- Buy early. Premiums are set at entry age and stay level. Waiting is expensive, and health that changes in the interim can make cover unavailable at any price.
- Cover the term, not a round number. Cover should last until your dependants no longer depend on your income.
- Tell your family the policy exists. A policy nobody knows about pays nobody.