How Much Cover Do I Need?
There’s no set answer, it depends on your individual family circumstances, but the things to consider are:
It’s likely your mortgage is the largest and most important financial commitment you have. Keeping a roof over your family’s head is probably your biggest driver for taking out life insurance. Consider the mortgage balance that is outstanding on your property – you’ll want this covered in your life insurance.
The age of your children can play a large part in deciding how much life insurance cover you need. Younger children will obviously need to be covered for longer financially than if your children were older. If they’re young, they may also need childcare. It could be they want to go to university, the costs of which should be considered, as well as any large purchases you’d envisage making, like a house deposit or a car.
Bills and expenses
Your living costs should be factored into how much cover you need. There’s more than the mortgage. Utility bills, car costs, insurances all add up and are considered essential expenses.
You may want your life insurance to cover more than just the essentials. You might want to provide your families with holidays and life’s other various luxuries if you weren’t there to provide them.
How Long Do I Need Cover For?
Depending on the type of life insurance you need, your cover could end on a set date. Thinking about the age of your children, your partner and the remaining term of your mortgage gives you a good idea of how long you need your cover to last.
Life Insurance Features
There are many life insurance products available, but many have similar benefits and exclusions.
Lump sum payment
Your family will receive a lump sum payment assuming you have a successful claim, if you were to die.
Some products will payout on your claim should your condition be diagnosed as terminal.
Flexible Cover Terms
Many products let you choose the length of cover. Some are short-term, whereas others can protect you for 50 years. Some have an age cap, which may stop you from being covered after this point.
Many products have the same exclusions, in that you won’t be covered if you fail to make monthly payments or once your policy term ends. Additionally, many policies stipulate there won’t be a payout in the event of suicide or self-harm within the first 12 months of the policy.
Life Cover Over Time
Depending on the type of product you go for, the amount you’re covered for over time can change. The difference is with increasing or decreasing life insurance.
Increasing Life Insurance
Increasing life insurance gives your family more complete protection should you die. The amount you pay increases over time to protect against inflation, but your cover increases at the same rate.
With this increasing cover, your family can maintain their standard of living and have the mortgage paid off. It could also cover childcare and university fees.
Many products have a cap on how much your premiums and cover will increase by.
Decreasing Life Insurance
Decreasing life insurance is ideal if you want to pay off a certain loan amount, plus interest. The amount you pay stays the same, but the amount you’re covered for decreases as you pay off your loan. This is ideal for paying off your debts, like a mortgage or any other outstanding loans.
Unlike increasing life insurance, it doesn’t protect your family’s lifestyle.