Make sure the people who depend on you are protected

Life insurance exists to protect people who rely on your income or your care. If someone would struggle financially without you, cover is worth considering; if no one depends on you, you may not need much at all. It is a question of obligations, not a box everyone has to tick.

• People with dependents. If a partner, children or ageing parents rely on what you earn, life insurance steps in where your income would have been — covering the mortgage, the bills and the years ahead.
• Shared debts and obligations. A joint mortgage, a business loan or other debt that would land on someone else is a clear reason to hold cover, even if your household has only one or two people in it.
• Who may not need it. If no one depends on you financially and you carry no debt that would pass to others, the case for substantial cover is weaker. Needs also change — cover that made sense with young children may matter less once they are grown and the mortgage is gone.

The right amount of cover is the one that closes the gap between what your family would need and what they would already have. Rather than a rule of thumb, it helps to picture the specific things cover would have to do, and for how long.

• What it would need to cover. Typically the mortgage and other debts, the income your household would lose, future costs like education, and final expenses. Adding these up gives the size of the protection need.
• What is already there. Existing savings, investments, any cover through work and a surviving partner’s income all reduce the gap. Insurance only needs to fill what is left over, not the whole sum.
• For how long. The need usually has an end date — when the mortgage is paid, the children are independent, or you reach retirement. Matching the length of cover to that horizon is what keeps it efficient.

For most people with a family to protect, term insurance does the job plainly and affordably. It covers a chosen number of years — the years your household most depends on your income — and because it is pure protection with no investment element, the cost stays low.

• It matches the years that matter. You choose a length of cover that lines up with your obligations — paying off the mortgage, raising children, reaching retirement — so you are protected through exactly the stretch when others depend on you.
• It is simple and low-cost. Because term cover is protection and nothing else, more of every dollar goes towards the cover itself. That makes it straightforward to hold enough, which is usually what matters most.
• It frees you to invest separately. Keeping protection and investing apart — term cover for the risk, your own accounts for growth — is a clean approach that suits the majority of households.

Permanent cover lasts your whole life and builds cash value over time. It costs more than term for the same protection, so it suits specific needs rather than being the default — most often a lifelong obligation, or estate-planning goals for higher-net-worth families.

• A need that never ends. Some obligations do not expire — supporting a dependent with lifelong needs, for example. Permanent cover is built for protection that has to be there whenever it is required.
• Estate-planning uses. For higher-net-worth families, permanent cover can play a deliberate role in passing wealth on and providing liquidity — uses that are best set up with an adviser and an estate attorney rather than off the shelf.
• Worth advice before committing. Permanent policies are more complex and more expensive, and they are not the right tool for a simple protection need. It is worth understanding clearly why you are choosing one before you do.

One reason life insurance is such an efficient way to protect a family is how the payout is treated. The death benefit generally reaches your beneficiaries without income tax, and because it passes by beneficiary designation it usually avoids the delays of probate.

• Generally income-tax-free. A death benefit paid to a named beneficiary generally passes free of federal income tax, so the full amount is there to do its job.
• It passes by designation. Because the policy names beneficiaries directly, the money typically goes to them without waiting on probate — one of the reasons cover provides support quickly, when it is most needed.
• Estate tax is a separate question. Passing income-tax-free is not the same as being outside your taxable estate. For larger estates, how a policy is owned can matter — a question for an adviser and an estate attorney.

For some families, life insurance is used less to replace income and more to provide ready cash at exactly the moment an estate needs it. When much of an estate is tied up in a business, property or other assets that are hard to sell quickly, a policy can supply liquidity to cover costs without forcing a fire sale.

• Cash when an estate is illiquid. Estate costs and taxes can fall due before illiquid assets can be sold sensibly. A death benefit provides cash on hand, so heirs are not pushed into selling a family business or property at the wrong time.
• Keeping assets intact. Liquidity from a policy can let a family keep the assets they want to keep — a home, a business, a legacy — rather than breaking them up to meet a bill.
• Set up with professionals. These arrangements are deliberately structured, often through a trust, and depend on your circumstances. They are firmly a job for an adviser and an estate attorney working together.

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We arrange private introductions to regulated financial advisors for individuals and families with investable assets of $250,000 or more.

• Investable assets $250k+
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