Life insurance: an act of care

A heavy phrase for a simple idea

Many people hear “life insurance” and think of something heavy. In truth, the right life cover is an act of care. It comes down to one question: if your income stopped tomorrow, could your family carry on?

That question breaks down into smaller, very practical ones. Will the home be paid for? Will the children be able to continue their studies? Will there be time and financial calm for everyone to get back on their feet?

What it does in practice

Life insurance pays an agreed amount, the sum insured, to the beneficiaries you have named if you die while the policy is in force. The money has no fixed purpose. Your family can pay off a loan, cover everyday costs for a few years or keep an education goal on track.

Many plans can be extended with permanent total disability or critical illness cover, because an income can be lost without anyone dying. If your need does not end after a set number of years, read about whole life insurance too.

How to work out the right amount

The right sum insured is not a random figure, nor whatever a comfortable-looking premium happens to buy. It should be linked to four things:

• Income. How much the family needs each month, and for how many years, while it adjusts.
• Loans. The balance on the mortgage and any other debts you do not want to leave behind.
• Children and education. The cost until they are independent, including the education goal.
• Years of protection. Cover should last as long as the needs do; for some families that means ten or fifteen years, for others longer.

From that total, subtract what is already in place: savings, other policies, cover through your job. What remains is the gap that life insurance needs to fill. For the mortgage in particular, see our article on mortgage protection.

The tax side in Cyprus

In Cyprus, life insurance premiums are deductible from taxable income, up to 7% of the sum insured. Total relief for life premiums, social insurance, GESY, provident and pension funds and medical funds cannot exceed one fifth (20%) of chargeable income. For the exact figure in your case, ask your accountant.

Why it matters to you

The more people rely on your income, the more it matters. A new home, a child, a loan, a parent who needs help: each of these adds to your responsibility, and to the need for cover.

Often there is some life cover in place already, but no one knows whether it is enough. A sum set years ago, for different needs, may today cover the mortgage and nothing else. After a divorce the question changes shape; see our article on child maintenance after divorce.

What you can do now

• Write down who depends on you financially, and for how many years.
• Find your existing life policies, including any linked to loans or your job, and note the sum insured on each.
• Check that the beneficiaries are the people you want today.
• Make a first estimate of the cover you need with the Life cover quick guide.
• If you would like to go through it with someone, book an appointment with an advisor.