Term life insurance (different from savings-linked life insurance, covered in another article) is one of the most underrated financial protection tools, precisely because the benefit isn't enjoyed by the person who takes it out, but by the people who depend on them financially.
What term life insurance is
It's a policy that guarantees payment of a set amount to designated beneficiaries if the insured person dies while the policy is active. Unlike savings-linked insurance, it doesn't build up value or generate returns: if the insured person doesn't die during the covered period, no money is recovered when the policy ends, similar to how car or home insurance works.
When it makes sense to take it out
Term life insurance is especially worthwhile when other people depend financially on your income: a couple with a shared mortgage, dependent children, or any situation where your death would create real financial hardship for those who depend on you. If you have no dependents or shared debts, the need for this product is much lower.
How to estimate the right amount of coverage
There's no universal formula, but a common approach is to add up the outstanding debts that would be left uncovered (such as the remaining balance on a mortgage), plus an estimate of the income your family would need over a certain number of years to maintain their standard of living while adjusting to the new situation, then subtracting any existing assets and savings that could already cover part of that need.
Why it's usually cheaper than people think
Pure term life insurance (with no savings component) usually costs considerably less than savings-linked life insurance with the same death benefit, precisely because it doesn't build up any additional capital: the cost reflects only the statistical risk of death during the covered period, which rises with the insured person's age.
Why many mortgages already include one bundled in
As explained in the article on mortgage-linked insurance, it's common for banks to offer (or require as a condition for a discount) life insurance tied to the outstanding mortgage balance. It's worth comparing its cost against a standalone life insurance policy, since the bundled option isn't always the cheapest one.
Review your coverage amount periodically
Your coverage needs change over time (a mortgage that's being paid down, children who become financially independent), so it's worth periodically reviewing whether your coverage amount is still adequate, rather than keeping the same policy unreviewed for decades.
Simulate the savings you could build alongside it
If, alongside your life insurance, you also want to build your own wealth, our compound interest calculator lets you project how additional savings would grow over the years.