A simples guide

How much life insurance do I need?

It’s all very well making the decision to get life insurance, but the next tricky question is how much cover do I actually need? It can be tough to get a straight answer because unfortunately life insurance is hardly the sort of conversation people want to have. But you know, sometimes needs must, so stiff upper lip and all that, it’s time to face facts.


Why should I get life insurance in the first place?

Life insurance isn’t for everyone. If you’re foot loose and fancy free with no dependents and intend on it staying that way, then it probably won’t be top of your to do list. But if you do have people that rely on you for income or if you have a mortgage then it’s worth considering. Life insurance will pay out in the event of your death and if you’re the main breadwinner then it can ease financial pressures on those loved ones you may leave behind.

How much life insurance should I get?

Getting the right level of cover is important, partly because it determines the cost of your premium each month – the more cover you take out – the higher the cost. But underestimate it and it could leave your family short. Consider the following – it should give you an idea of how much cover you might need:

  • Your mortgage – regardless of what life throws up, repayments still need to be made. Whether you’re the breadwinner or part of a two income household, think about your monthly repayments or what is outstanding on your mortgage and whether it could be repaid without your contribution.
  • Other loans – do you have any other debts that need to be paid off, perhaps a car loan, personal loan or credit card debts? Check beforehand whether or not any of these loans are already covered by another insurance policy you may have; if not then you might want to add the total to the amount of cover you need.
  • Childcare and education – if you’re a stay at home parent, don’t underestimate your financial value. If you were no longer around and your partner wanted to keep working, how much would it cost to replace the care you provide? You may also want to consider increasing your sum insured to include the cost of school or university fees.
  • Critical illness cover – life insurance cover only pays out in the event of your death, it doesn’t offer anything if you become ill and can’t work. However, many policies also offer critical illness cover as a bolt on which can give peace of mind if you become seriously ill.

What levels of cover are available?

There are two main types of life insurance – term life insurance and whole of life assurance. Which you choose, will depend on a combination of what you need and how much you can afford.

Term life policies cover an agreed period of time such as five, ten or 25 years. You’ll pay premiums throughout that period and if you shuffle off this mortal coil within that time, your beneficiaries will receive a payout. However, if you don’t end up pushing up daisies (hooray) you won’t receive anything and you won’t get your premiums back either.

Under term life policies, there are two options available – level term life policies where the amount of money you’re covered for is the same throughout the agreed period (hence the name ‘level term’) and decreasing term policies – offering cover that decreases over the agreed period. Decreasing term cover may be a good option if you have a repayment mortgage and the amount decreases over time. Premiums for decreasing term policies are usually cheaper than for level term policies.

Whole of life policies on the other hand are more expensive in general. As long as you continue to pay into your policy, this type of cover will pay out regardless of when you pass away, however you may need to speak to a financial advisor to get this type of cover.


So how much is life insurance then?

The amount you pay will be determined by the amount and type of cover you opt for. It may also consider your age and overall health (for example, whether you smoke). But it doesn’t have to cost the earth, policies including critical illness cover can start from as little as £2.35** a month and the average monthly premium is £18.29^– that’s less than the average take away and not a lot for peace of mind, so why not be prepared and start a quote today?


**Prices start from figure based on a 30 year old non-smoker with decreasing term cover over 10 years (Mar2015-Feb2016)

^50% of people can achieve a premium of £18.29 a month  based on comparethemarket.com data in June 2016

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