How much life insurance do I need? part one

Life insurance can be one of those things where we know that we should have it but with a never ending to do list we think, “I’ll sort that out tomorrow.” In reality we should all be sorting out our life insurance today. When we have a young family or a mortgage to pay off life insurance can be a crucial safety net that is so often overlooked. 

The first question most people ask when thinking about their life insurance is how much cover should I have? 

The answer to this is going to be different for everyone and will be based on several different factors. 

  • Do you have young dependants living at home?
  • Do you have a mortgage that you are still paying on your home? 
  • Do you have a spouse that is dependent on your wage? Are you the main earner of the household? 
  • How would your family survive without your income? 

The main goal from life insurance is to ensure that in the event of your death your family would have enough income to cover their expenses. This could be to pay off the mortgage, cover the household bills and to use towards funeral expenses. 

Once you have a rough idea of how much cover you would be looking for you can then either use a comparison website to try and find the best quote possible, approach potential insurance companies directly to obtain a quote or consult with a life insurance broker.

The general rule of thumb is that the insurance amount should be ten times the main breadwinners income. 

What type of insurance should I have? 

There are several different types of insurance and again the answer will be different for each family and is subject to your own circumstances. 

  • Level Term – This type insurance lasts for a set amount of time. For example twenty or thirty years. The premiums stay the same for the duration of the insurance. If you pass away during the term then your family will receive a lump sum payment. If you pass away after the term then they will not receive anything. 
  • Mortgage decreasing term – This is popular amongst people who are still paying off the mortgage on their home. As your mortgage decreases so does the life insurance. They normally decrease together ensuring that if you pass away your family will be able to pay off the mortgage and not lose their home. This is normally the cheaper option as the payout amount decreases over time. 
  • Whole of Life – This is a permanent level of cover. It lasts for the whole of your lifetime. Whether you pass away after five years or fifty years your family will receive your life insurance payout. This typically tends to be the most expensive as the insurers know that at some point they will have to make a payment. 

How do I choose which level of cover is best? 

This is where those questions we asked early come into play. 

Do you want insurance that covers you whilst your children are growing up and dependent on your income? If this is the case then term life insurance would probably be the best route. There are several options for how long the term lasts. Someone with children may choose twenty years to cover their dependants until adulthood. 

Do you want insurance to cover the lifetime of your mortgage but no longer? In that scenario then mortgage decreasing would be perfect for you. The payout that your family will receive would decline over time but will stay in line with how much is left on your mortgage. 

Do you want to know that no matter what happens or what age you pass away your family will be financially supported? A permanent insurance such as whole life would be the best fit in this scenario. 

If you are still unsure how much life insurance you need then there are lots of life insurance calculators online.

This will calculate how much cover you need based on –

  • What you would like to use your life cover for. 

Pay off mortgage

Support dependents 

Funeral costs

  • How much is left remaining on your mortgage. 
  • What your current monthly salary is.
  • How many children you have and their current ages. 

Once you have a rough idea of how much cover you would be looking for you can then either use a comparison website to try and find the best quote possible, approach potential insurance companies directly to obtain a quote or consult with a life insurance broker.

Do be sure to shop around as prices will vary between insurance companies. When they are calculating your quote they will take several factors into account. 

  • Your age.
  • Your lifestyle – Your occupation and whether you play any dangerous sports. 
  • Your medical history.
  • Your family’s medical history.
  • Whether you smoke. 
  • Your drug and alcohol intake. 

It is vitally important that you are honest when answering these questions. Most insurance policies are paid out with no issue but for the few that are rejected it is normally down to non disclosure on the policyholders behalf.

Yes, you will have to pay more in premiums when you smoke or have a pre existing medical condition, but that extra expense is worth the peace of mind in knowing that if the worst was to suddenly happen your family would be taken care off. 


Part Two Available To Read: How much life insurance do I need? part two

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Who is the cover for?

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