How long is a piece of string? It’s a bit like asking how much life insurance you need. The answer can be almost any number and will depend on your own personal circumstances, the needs of your family and dependents, and, quite simply, how much you can afford in monthly life insurance premiums. No one size fits all.
Nevertheless, there are any number of online calculators, into which you key some basic details about yourself and your family, and which then help you to calculate a reasonably good ballpark figure. These calculators will also help to ensure that you don’t overlook a particular element of expenditure that should be covered in your life insurance provision.
Mortgage – probably your biggest single current outgoing is your mortgage repayment. A mortgage is something you’re unlikely to want your loved ones to have to assume in the event of your early death and you’ve probably already made some provision for it to be repaid in such an event. Most lenders are likely to have requested some form of life security on the loan in any case. But now is the time to check that you have sufficient cover against both capital and interest repayments on the mortgage.
Other loans – the same goes, of course, for other loans you may have taken out and which are not already covered by some form of
life insurance. Once again, you are likely to want to ensure that your family is not left with large debts to pay off in the event of your death.
Childcare – if you have a young family, it’s not just your role as a breadwinner that is going to be missed. You will want to consider all the many unpaid responsibilities you currently perform as a parent or guardian and whether alternative, additional childcare arrangements might need to be made in the event of your death. Just how much cover is likely to be needed and for what period of time, will of course depend on the number and ages of any children.
Education expenses – once again, you will probably want the peace of mind that your children will be able to continue at the same schools or be able to complete their university education in the event of your death. School fees and university expenses should therefore be included in your list of provisions to be made.
Income replacement – if you were no longer there as principal breadwinner, how much money would your dependents need to continue in the enjoyment of a lifestyle and standard of living that you want for them? This is the most difficult calculation of all, of course, since it involves taking your current salary and attempting to project into the future the family’s likely needs. The most common “rule of thumb” in this instance is to provide a figure that is ten times your present salary. Depending on your personal circumstances, the number and ages of any of your children for instance and the way you envisage the proceeds being used, however, there may be an argument for increasing this provision up to 25 times your annual salary.
To work out how much life cover you need:
• Take into account all your current financial commitments and those you will continue to have in the future
• There is no hard and fast rule about the amount of money it is appropriate to leave behind, but there are a number of major headings of expenditure that you will probably want to take into account
• Remember that there are a number of online calculators that should help you to arrive at a ballpark figure for your likely needs and help you to ensure that none of the major headings of expenditure are overlooked.
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Life Insurance go to http://www.confused.com/life-insurance
