Term Life Insurance

What Term Plans Actually Pay

Term life insurance does one thing, and it does it without complication. You choose an amount and a number of years. If you die inside those years, the insurance pays that amount to the people you named. If you are still here at the end, the policy simply stops and nothing is returned.

That last sentence is where most of the hesitation comes from, and it is worth meeting head-on. A term life insurance policy is not a savings arrangement and was never meant to be one. With term life insurance you are buying a guaranteed death benefit for a defined window at the lowest price the market will write it, and the absence of any return at the end is precisely what makes the price low.

The benefit is normally paid as a single lump sum, free of any requirement to account for how it is used. Most families here use it to clear a mortgage, fund school fees to the end of the school years, or simply replace what the household earned.

How the Cost Is Set

Four things decide what a life insurance policy costs: your age at the start, your health, the length of the term, and the size of the benefit. Age does most of the work, and it moves in one direction only, which is why the same coverage bought five years later is rarely the same price.

Health is assessed once, at the start. On most term life insurance that means a questionnaire and sometimes a short examination, and the rate you are given is then guaranteed for the whole term regardless of what happens to your health afterwards. That guarantee is the part people underrate, because it is the reason a policy taken while you are well keeps its value when you are not.

Two structures of term life insurance exist. A level term keeps the benefit flat for the whole period. A decreasing term reduces it over time, which suits a repayment mortgage and costs less. Which is right depends entirely on what the money is meant to replace.

Insurance Coverage That Matches the Debt

The most common question we are asked is how much life insurance to buy, and the most common answer given elsewhere is a multiple of salary. That is a starting point rather than an answer, because it ignores what the money is actually for.

A more useful method is to add up what would still have to be paid. The outstanding mortgage. School fees to the year each child finishes. Any loan that would not die with you. Then add what the household would need to live on for as long as it takes to reorganise, which for most families is several years rather than several months. Subtract whatever already exists — savings, an employer scheme, an existing life insurance policy — and the gap is the benefit worth insuring.

One adjustment is worth making for households here. An employer scheme benefit should be counted only for as long as you expect to stay with that employer, which for most expatriate careers is a shorter period than the obligation itself. Counting it in full is the most common reason a calculation comes out too low.

That figure is often larger than people expect and the life insurance is often cheaper than they expect, which is a good combination. It is also the reason we price two levels rather than one.

Choosing the Insurance Term

The length matters as much as the amount, and it is chosen the same way: by asking when the obligation ends rather than by picking a round number.

If the purpose is a mortgage, the term runs to the end of the mortgage. If it is children, it runs until the youngest is independent. If it is a business loan you personally guaranteed, it runs to the end of the guarantee. A policy that expires three years before the liability does has failed at the only moment it mattered, and extending it later means being underwritten again at an older age and in whatever health you then have.

There is a second reason to be deliberate here. A term life insurance policy is priced off the length as well as the age, so a longer policy bought young is frequently cheaper per year of coverage than a shorter one bought later. Households that buy a ten-year plan intending to review it often find the review lands at exactly the wrong moment.

For that reason we generally suggest erring long. The extra years cost comparatively little at the outset, and they remove the risk of having to buy fresh coverage at the point when it is hardest to get.

Which Plan Suits Which Situation

The right plan follows from the obligation rather than from a preference, and in practice the households we advise fall into a handful of recognisable positions. None of the descriptions below is a recommendation on its own — they are the starting points we work from, and the specifics of your own circumstances decide the rest.

A household with a repayment mortgage and no other large commitment usually needs a decreasing plan running to the end of the loan. The benefit falls as the debt falls, the coverage and the liability stay roughly in step, and the life insurance costs less than a level equivalent because the insurance company is on risk for a shrinking amount.

A household with school-age children usually needs the opposite. A level plan holds the same benefit for the whole period, because the cost of raising and educating a child does not decline as the years pass. Here the term is set by the youngest child rather than by any debt, and the policy is normally written to run several years beyond the point people first suggest.

A single earner supporting a family in another country is a third position, and the one most often underinsured. The obligation is real, continuing and usually invisible to any employer scheme. A level plan sized to replace the remittance for a defined number of years is the straightforward answer, and the currency the benefit is paid in matters as much as the amount.

A business owner who has personally guaranteed a facility is a fourth. The guarantee does not lapse on death, so a plan running to the end of the facility protects the family from a liability they did not take on. Where there are partners, a second policy written between them is usually needed as well, and that is a different conversation again.

What all four have in common is that the plan was chosen from the obligation backwards. That is the whole method, and it is why we ask about the mortgage and the children before we ask about budget.

Coverage When the Term Ends

Every term life insurance policy has an end date, and what happens at that date is written into the contract from day one. It is worth knowing which of three things your policy does before you need to care.

Some simply lapse. Some are renewable, meaning the insurance continues without fresh health questions but at a rate recalculated for your age, which by then is materially higher. Some are convertible, allowing you to exchange the policy for permanent coverage without being underwritten again. That convertibility option costs almost nothing while you are well and is the single most valuable clause in the document if your health changes during the term.

Convertibility is worth a further sentence because it is misunderstood. It does not mean the permanent policy is free, or that the premium stays the same — it means the insurance company cannot decline you or load the rate on health grounds when you exercise it. For anyone whose circumstances may change, that is the difference between having coverage later and not having it.

We check for it on every schedule we review, because it is routinely absent from the cheapest policies and routinely unmentioned when they are sold.

What to Learn From the Schedule

Five lines on a life insurance policy decide what it is worth, and none of them is the headline figure.

The guaranteed period, which tells you whether the rate can be reviewed. The nominated beneficiaries, which decide who receives the death benefit and how quickly. The exclusions, which on most contracts are short but always include suicide within an initial period. The currency, which matters more here than in most markets because the liability you are insuring may not be in the same one. And the convertibility clause described above.

A sixth line is worth adding for anyone who has held the same life insurance for some years: check that the benefit still matches the obligation. A policy sized against a mortgage taken out a decade ago, or against school fees that have since risen, may now be a fraction of what the household would actually need.

If you hold an existing policy and are not sure where it stands on any of those, send us the schedule. Reading it properly takes us a few minutes and it is the part of this that most often changes someone’s mind.

Term Plans and Permanent Alternatives

The other family of products is permanent life insurance, and the comparison is asked about often enough to be worth setting out plainly. Permanent coverage does not expire. It runs for the whole of life, pays a death benefit whenever that comes, and in most forms builds a cash value you can draw on or borrow against.

Whole of life is the traditional shape: a guaranteed benefit, a guaranteed premium and a slowly accumulating value. Universal life is the flexible version, letting you vary the premium and the benefit within limits, with the cash value earning at a declared or index-linked rate. Both cost several times what term life insurance costs for the same benefit at the same age, and that multiple is the whole of the argument.

Our general view is that the two answer different questions. Term life insurance answers a temporary obligation, and almost every household has one. Permanent life insurance answers estate planning, a liability that genuinely never ends, or a wish to leave a guaranteed sum regardless of when death comes. Where a family has both a mortgage and an estate to think about, the sensible arrangement is frequently both: a large term policy covering the years of maximum obligation, and a smaller permanent one underneath it.

What we would be wary of is buying permanent coverage because a term plan feels wasteful. The amount of insurance you can afford matters more than what happens at the end of it — a small permanent policy that leaves a family short is a worse outcome than a large term policy that expires once the children have grown and the mortgage is gone.

Which applies to you depends on the obligation, the timescale and what you want the money to do. We are happy to price both so the comparison is a real one rather than a theoretical one.

Cross-Border Considerations for Expatriate Households

Buying life insurance as an expatriate is not quite the same exercise as buying it at home, and four differences in how life insurance behaves account for most of the trouble we are asked to sort out afterwards.

The first is portability. A policy written by a local insurer for local residents may restrict or end coverage if you move away, and a household that expects to be here for three years and stays for twelve, or leaves after two, can find the arrangement no longer fits. An internationally written contract usually follows you, and the difference in premium between the two is often smaller than people expect. Where a move is even possible, we would rather place the insurance on a contract that travels.

The second is currency. The benefit is paid in the currency of the policy, and the obligations it is meant to answer may sit in another one entirely — a mortgage at home, school fees in a third country, a family supported somewhere else again. A benefit that was adequate when the policy was written can fall short years later purely through exchange rates. We match the currency of the coverage to the currency of the liability wherever the market allows it, and where it does not, we say so and size the benefit with that in mind.

The third is who receives the death benefit and how quickly. A nomination on the policy is what makes payment straightforward; without one, the benefit generally falls into the estate and waits for whatever probate process applies, which across borders can take a long time. For a household that has moved countries, checking that the nomination is current and correctly recorded is the single cheapest piece of maintenance available, and it is the one most often neglected. We check it on every schedule we review.

The fourth is what already exists. Many expatriate households arrive holding a policy taken out years earlier in another country, often with a term chosen for a situation that has since changed. Some of those contracts remain perfectly good and we say so. Others no longer cover the person who now lives here, or are denominated in a currency that no longer matches anything, or expire well before the obligations do. Reading the existing life insurance first is how we avoid recommending coverage somebody already has.

Put together, these are the reasons an expatriate household usually ends up with a different policy from the one it would have bought at home — not a more expensive one, and frequently a cheaper one, but one written to survive a move. Whether that applies to you depends entirely on your own plans, which is why the conversation starts there rather than with a quotation.

How the Policy Is Placed

Households rarely arrive wanting to talk about life insurance. They arrive because a mortgage has just completed, or a child has just been born, or an employer scheme has just ended. The useful conversation is short, and it starts with the obligation rather than with a product.

We read whatever you already hold first. A surprising number of these conversations end there, because the existing arrangement turns out to be adequate and we say so. Where there is a genuine gap, we take the same request to several of the insurers on our panel rather than one, because life insurance is one of the few products where the same person can be rated quite differently by different underwriters on identical information.

That difference is worth understanding. Underwriting is a judgement, not a formula. A history that one insurer loads, another may accept at standard rates; a pastime one treats as ordinary, another excludes. Placing the same application in more than one place is the single most effective thing anyone can do about the price of a term life insurance policy, and it is the part a household cannot easily do for itself.

The application itself is straightforward and worth taking seriously. Answer the health questions carefully and completely, because a benefit is paid or refused on what was disclosed, and an honest answer that attracts a loading is always better than a convenient one that voids the policy. Where an examination is required we arrange it, and where an insurer asks for a report from your doctor we chase it, which is usually where the delay sits.

Once the life insurance is on risk we hold the schedule and review it with you as things change. A new child, a larger mortgage, a move to another country, a change of employer — each of those alters what the insurance should be doing. In most years the answer is that nothing needs changing, and saying so is part of the job.

What we will not do is recommend more life insurance than the obligation supports. The purpose of the benefit is to leave a household no worse off, not to leave it better off, and a policy sized beyond that is simply an expense. If you want a second opinion on coverage you already have, that is a conversation we are happy to have whether or not it ends in a policy.

Questions We Are Asked

These come up in almost every conversation about life insurance we have with expatriate households here. The answers below describe how this insurance generally behaves in this market; your own policy is the authority, and where the two disagree the schedule wins.

If you already hold a policy, the fastest route to a real answer is to send us the schedule rather than to read a general description of what a life insurance policy usually does.

If your question is not here, it is probably the one worth asking. We arrange the permanent alternatives too, so the comparison we give you is not one where we only sell one side of it.