How Much Life Insurance Do I Need?
As with all long term protection policies Life insurance is one of the best ways to make sure that your family can support themselves financially after you pass away. When calculating the amount of protection cover that you would need things like mortgages and other debts need to added into the equation. Without adequate future planning, your family could have a huge unexpected load on your financial dependents. When getting a life insurance quote, you should also include the cost of living and other expenses including further education that they will have to deal with. If you need help working out how much life insurance you need, our specialist team at Life Insurance Cover can help.
In This Guide:
Mortgages
One of the biggest financial investments people make is the purchase of a house with a mortgage. Many people take out a mortgage protection insurance product that will cover the cost of their mortgages in the event of their death. Although it is not a legal requirement to get an insurance product to protect a mortgage, it is important to add the cost a mortgage into working out how much life insurance you may need. Many people purchase life insurance protection to protect their family home. Ensuring a stable and safe home environment. Another reason for purchasing mortgage protection insurance is because mortgages are often the largest monthly payment that families have to make.
Paying The Mortgage
If you are the sole financial provider for your family or if you’re household is a dual, triple income household. The loss of a financial provider can impact dramatically the stability of household finances. It is unlikely that your remaining family members will be able to afford to stay in your property if your mortgage is still to be paid. If one of the providers pass away without adequate financial protection.
Mortgage protection life insurance ensures that your household’s financial stability is maintained for the length of the mortgage. This means that your life insurance term will be the same as that of your mortgage.
The popular and most cost effective option for people, is the use of a decreasing term life insurance policy. This type of insurance will cover the length of your mortgage and will gradually decrease over time at a rate equal to the amount of outstanding on your mortgage. This means that the payment that your family would receive will decrease, as will the premiums because your mortgage debt is become smaller as you pay it off.
Do you have mortgage which is interest only? You should factor in the full amount that is still owed for the capital debt. This is because with interest only mortgages the capital debt amount does not decrease unlike a standard mortgage. It is very important to be aware of this and the level of interest which remains outstanding when deciding how much life insurance cover you need.
Other Debts
Similar to paying off your mortgage with a decreasing term life insurance. If you have other debts including credit cards and loans, you should also consider adding the total of the debt when working out how much Life Insurance you will need. These debts will be paid off in a similar way to a mortgage, over time the outstanding amount reduces.
By adding the total of the amount of debt owed into a decreasing term life insurance policy, along with the other household outgoings will provide the financial stability that your family will need. The correct level of life insurance will pay the outstanding debts.
Family Living costs
After working out the total costs relating to mortgages and any outstanding debt, it is important to create an ongoing level of income for your family. All households have a certain level of day to day costs including heating, food, cars, pets etc. By adding a proportion of these costs into your calculations for how much Life Insurance you need will help your family in the longer term. This is especially important if you are the main source or a major contributor to the income of your household. Even if you and your partner are both working and contributing into your household. It is a good idea to factor these costs in as it may be unlikely that they will be able to maintain their expenses without your financial contribution.
Add On Products
Many insurance companies do offer additional products such as critical illness cover in the case of you falling severely unwell. This means that if you are unable to work. The drop in your income will be covered by your additional critical illness cover policy. It is possible to take out a separate policy to cover this type of eventuality. But you can try adding this extra when generating a life insurance quote as it can often come out cheaper.
However, if you decide to buy a life insurance policy with critical illness cover. (known as a combined policy) There could be a problem if you need to claim for a critical illness during the lifetime of the policy. It will cease coverage after the critical illness claim and not offer ongoing life insurance.
Although Critical illness premiums can be higher, it is worth considering whether or not you will need this. Of course we can never be sure of what the future holds. But if you are from a family with a history of heart conditions. You may want to consider buying the added level of protection. All critical illness cover insurance policies protect against certain named medical conditions. They do vary between each insurer. At Life Insurance Cover, our specialist advisors ensure that they explain the benefits and limitations of each policy and insurance provider. They ensure that each step of the process is fully explained and provide help with any questions that you have.