As children across the country eagerly return to school, the importance of life insurance takes centre stage in the minds of parents and families.
Just as these parents prioritise their children’s education, they understand that safeguarding their family’s financial future is equally vital.
Life insurance provides a crucial safety net, ensuring that even in unforeseen circumstances, such as illness or accidents, their loved ones can continue to pursue their educational dreams with financial security.
But how much is adequate? You need to pay for your cover – too much will be expensive.
So how do you determine the right amount of life insurance cover you need?
What do you need to cover?
Life insurance can provide a lump sum payment, but everyone needs a different lump. You need to look at exactly what your family’s financial needs are.
Look at your obligations: Start by evaluating your current financial obligations. This includes outstanding mortgage payments, personal loans, credit card debts, and any other liabilities.
Your mortgage is probably your biggest commitment. Paying it off will allow your family to keep the home you shared. Keeping a home will mean financial and emotional security for those you leave behind.
Your life insurance cover should be enough to pay off these debts, ensuring that your family isn’t burdened with them after your passing.
Calculate Your Income Replacement: Consider how much of your income your family would need to maintain their lifestyle. With the mortgage paid off, they might not need as much coming in, but they would still need to pay the utilities and council tax and put food on the table. Work out what a reasonable income for them might be.
Cover that provides a lump sum around 10 times your current annual income might be sufficient – but you should seek expert advice.
Plan for future expenses: Think about future expenses, such as your children’s higher education costs, marriage expenses, and inflation. These costs are likely to rise over time, so it’s important to account for them when determining your life insurance coverage.
If you have any dependents with special needs or medical conditions, make sure to factor in the additional costs associated with their care and support in the future.
Take savings and assets into account: Add up any existing savings, investments, and assets that your family could call on once you are gone.
Subtracting these from your calculated insurance needs could help reduce the level of cover you need.
Decide how long you need cover for: Term Life Insurance provides cover for a specified period, such as 10, 20, or 30 years. It’s generally more affordable and suitable for covering specific financial obligations – such as a mortgage – and income replacement needs during your working life.
Life Insurance is purchased for a set period of time, while life assurance is for the whole of your life.
Whole-of-Life Insurance – more properly life assurance – offers coverage for your entire life. It’s more expensive but guarantees a payout whenever you pass away. It can be useful for covering lifelong financial responsibilities.
Get some expert help
Calculating your life insurance needs can be complex. Consulting a qualified financial adviser can provide invaluable guidance, ensuring that you’ve considered all relevant factors and that your coverage aligns with your family’s specific needs and goals.
Life insurance needs change over time. Marriage, childbirth, changes in income, inflation: It’s important to review your life insurance coverage regularly and update to ensure that your family remains adequately protected.
At Continuum we can provide expert advice – and help you find the most cost-effective cover you need for your circumstances.
But there is just one thing to remember – the younger you are when you take out life cover, the less it can cost. So if you are thinking about life cover, it makes sense to call us today.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Protection products, you should seek independent financial advice before embarking on any course of action.
You should refer to policy documentation and seek advice in order to understand what the policy does and does not cover before making an application.