How Much Life Cover Do I Need?
Many people are unsure of the level of cover they need, however there is no set answer. It depends on a number of factors including:
Your mortgage is probably your most important outgoing, for most of us, it’s the biggest financial commitment we make. Ensuring our family’s home is theirs should we die is one of the biggest drivers for life insurance. You should think about how much is outstanding on your current mortgage, as this should be paid off by your life insurance.
If you have younger children, you’ll probably need to consider increasing the amount of cover you have, than if your children were older. Additionally, younger children needing childcare and older ones that might go to university all need to be factored in. It could also be that you’d planned on helping them out with a car, or house deposit.
Bills and Expenses
Whilst you should make sure you cover your mortgage, you might want to make sure you’ve covered your other bills and expenses, like utilities, car costs, and insurances.
You might want to ensure your family live in comfort should you pass away. This goes beyond just covering the essential payments, but affording any luxuries you might want your families to have, like holidays.
How Long Do I Need Cover For?
The length of your cover depends on what it is you want to protect. Taking into account the remaining term of your mortgage, the age of your partner and children helps you work out how long you need cover for.
Life Insurance Cover
Whilst there are many life insurance products available, many have similar basic benefits and exclusions. It’s important to speak to an advisor to work out what cover is right for you.
Lump Sum Payment
If you were to die, your family would receive the amount as a lump sum payment.
Some products will payout on your claim at the point your condition is diagnosed as terminal.
Flexible Cover Terms
Different products have different terms of cover. Some policies end when you reach a certain age, others are for a set time period, for example, 50 years.
You would typically find your policy becomes void if you fail to make your premium payments, or obviously once your term ends. Additionally, most policies will not payout should you commit suicide or evidence self harm within the first year 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 known as increasing or decreasing life insurance.
Increasing Life Insurance
The amount you are covered for increases over time, to protect your family in line with inflation. Your premiums, however, increase at the same rate. Increasing life insurance gives your family more complete protection should you die.
This type of insurance helps your family to maintain their lifestyle as well as have the mortgage paid off. It’s common for these policies to have a cap on how much your policy will increase by.
Decreasing Life Insurance
Decreasing life insurance pays off a certain amount, like a loan or mortgage. You pay the same amount over the period, but your level of cover decreases in line with your mortgage balance reducing.
Unlike increasing life insurance, it doesn’t protect your family’s lifestyle.
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