Phase 3: Cover 10x Your Income in Term Life

Why roughly ten times income

A death benefit is meant to replace what the household loses. Ten times gross income, invested conservatively, produces an income close to what the earner was contributing, without the family being forced to sell the house or move schools in the first year.

It is a starting point, not a rule. Add outstanding mortgage balance and expected education costs, subtract existing cover and liquid assets, and you land on a figure that is often between eight and fifteen times income.

• Start at 10x gross income for each earner, including a non-earning carer's replacement cost
• Add the mortgage balance and any private education you intend to fund
• Subtract employer cover, which usually ends when the job does
• Match the term to the year your youngest becomes financially independent

Term, not whole of life

Term life covers a fixed number of years for a fixed premium and pays only if you die inside the term. That is exactly the risk you are insuring during the wealth-building phases, and it costs a fraction of a permanent policy for the same benefit.

Whole-of-life and universal policies bundle an investment inside the insurance. The insurance part is more expensive and the investment part is generally worse than a low-cost index fund, so the plan separates the two: buy term, invest the difference in Phase 5.

Disability cover is the more likely claim

Losing income to illness or injury is statistically more likely during working life than dying, and it is the risk most households leave uncovered. Long-term disability cover replacing 60% to 70% of income is the standard target.

Check whether your employer policy is own-occupation or any-occupation, and whether the benefit is taxable. A policy that only pays if you cannot do any job at all is much weaker than it appears in a benefits brochure.

Deductibles, liability and the boring policies

With a reserve in place from Phase 2, raising the deductible on home and auto cover lowers premiums immediately, and the reserve absorbs the higher excess. That is the direct financial reward for finishing the previous phase.

Liability is the cheapest cover most households can buy and the one that prevents catastrophic loss. Check that limits match your net worth as it grows, and revisit them every time your income steps up.

Review points that actually change the number

Cover is not a one-off purchase. Marriage, a child, a house move, a mortgage payoff, a business, or a large pay rise all change the amount required, and the cost of adding cover rises with age and health.

Set an annual review at the same date each year: list every policy, its limit, its deductible and its renewal date, and re-shop the two most expensive.