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Life insurance answers one question: if your income stopped permanently tomorrow, what would the people who depend on it have to give up? Everything else — product types, riders, investment components — is detail layered on top of that question.
If nobody depends on your income, you probably do not need cover at all. If someone does, the amount is calculable and worth calculating properly.
Why term, for most people
Term life pays a fixed sum if you die within a defined period. The premium is level, and if you outlive the term, nothing is paid. That last part is why it is cheap, and it is a feature rather than a flaw: you are insuring the years in which people actually depend on you.
Permanent policies — whole life, universal life — combine cover with a savings or investment element and never expire. They cost substantially more for the same death benefit. They have genuine uses, largely in estate planning and for certain business arrangements. They are also sold heavily to people whose actual need is straightforward income replacement, where term does the same job for a fraction of the premium.
The question is not “which product is better” but “what am I protecting against, and for how long?” Most answers to that question describe a term policy.
A method that beats the rule of thumb
Multiply-your-salary rules ignore whether you have a mortgage, how old your children are, and what you have already saved. Build the number instead:
- Debts that would remain. Mortgage balance, car loans, personal loans, any debt with a co-signer. Add the full outstanding amounts.
- Income to replace. Take the share of your after-tax income the household actually relies on, and multiply by the number of years it would be needed — typically until your youngest is financially independent, or until a surviving partner reaches retirement provision.
- Costs that arrive later. Education, and any care costs your household is committed to.
- Immediate costs. Funeral expenses and a cash buffer so nobody is making financial decisions in the first weeks.
- Subtract what already exists. Savings and investments, existing cover through an employer, and any survivor benefits your household would qualify for.
The remainder is your shortfall. That is the cover to buy.
A worked example
A household with two children aged 6 and 9. One partner earns $85,000 after tax; the other earns less and would keep working.
- Mortgage balance: $240,000
- Other debts: $18,000
- Income replacement — $45,000 a year of household reliance for 12 years, until the younger child is 18: $540,000
- Education contribution: $80,000
- Final expenses and buffer: $25,000
- Less savings and investments: −$95,000
- Less employer cover: −$170,000
Shortfall: roughly $638,000, so a $650,000 policy. A salary multiple rule would have suggested somewhere between $425,000 and $850,000 — a range wide enough to be useless.
Do not lean on employer cover
Cover provided through work usually ends when the job does, and it is rarely portable. Treat it as a helpful reduction in what you need to buy, not as your plan. If your own policy is sized on the assumption the employer benefit continues, a redundancy leaves you underinsured at the worst moment.
Choosing the term length
Match the term to the obligation, not to a round number. If your youngest is 6, a 15-year term leaves a gap while they are still at university. If your mortgage has 22 years to run, a 20-year term expires with debt still outstanding.
Longer terms cost more, but the increase is often smaller than people expect, because the pricing reflects your age at purchase across the whole term. Buying a 25-year policy at 35 is materially cheaper than buying a 15-year policy at 35 and then a new 10-year policy at 50, when your premium reflects your age and health at that point.
Some people layer policies instead: a large policy for the years of peak obligation and a smaller, longer one underneath. It reduces total premium if you are comfortable managing two policies.
Comparing quotes properly
Pricing for identical cover varies widely between insurers, because each weighs health conditions, family history, occupation and lifestyle differently. An insurer that prices one condition harshly may be competitive on another. That is why collecting several quotes matters more here than in most insurance categories.
Three things to check beyond price. Convertibility — can the policy be converted to permanent cover later without new medical underwriting? That option has value if your health changes. Renewability — what happens at the end of the term, and at what cost? The underwriting process — some insurers offer accelerated underwriting without a medical examination, which is convenient but may price higher for healthy applicants who would benefit from a full assessment.
Answer every medical and lifestyle question completely and accurately. An inaccurate answer, even an unintentional one, can give the insurer grounds to decline a claim — and a policy that does not pay is worse than no policy, because you paid for it.
Questions people ask
Do I need cover if I do not earn an income?
Often yes. If a non-earning partner provides childcare, that work would have to be paid for. Costing out the replacement is usually sobering, and it is a real financial exposure.
Does smoking or vaping change my premium?
Substantially, and insurers test for nicotine during underwriting. Most require a period of being nicotine-free before non-smoker rates apply. If you have quit, ask each insurer what their qualifying period is — they differ.
Can I increase cover later?
Only through new underwriting, unless your policy includes a guaranteed insurability option. Since health tends to complicate over time, buying slightly more than today's calculated need is often cheaper than adding cover later.
Should I buy through a broker or direct?
A broker can quote across many insurers at once, which is valuable given how much pricing varies for the same risk. Ask how they are paid. Buying direct works well if you have straightforward health and are willing to gather several quotes yourself.
Read next
Compare term life quotes
Cover levels, terms and what to check beyond the premium.
Building the buffer alongside cover
Insurance handles the catastrophe; savings handle the rest.