Term insurance is the cover; everything else is investment
Insurance answers one question: if the income stops, does the household still work? Investment answers a different one. Products that claim to do both charge for the insurance, invest what is left after costs, and produce a result that is worse than doing the two separately.
Sizing the cover
The human life value approach adds three things and subtracts two: replace the income the household depends on for as long as it depends on it, clear the outstanding debt, fund the goals that must happen anyway — then subtract the cover already in place and the investments the family could realistically use.
Review it after anything that changes the answer: a new loan, a child, a house, a material change in income. Cover bought at thirty for the circumstances of thirty is rarely right at forty-two.
Arjun Kapoor
Financial planner
Arjun writes about retirement planning and the arithmetic of long-term saving. He has been a financial planner for eleven years and remains unconvinced by anything that promises certainty.
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