How much life insurance (also known as life assurance) you need really depends on your circumstances, for example whether you’ve got a mortgage or children. Fortunately Confused.com can give you a better idea of how much cover is right for you.
Before you compare life insurance, it's worth bearing in mind that the amount of cover you need will very much depend on your own personal circumstances; such as the needs of your family and dependants, and – quite simply – how much you can afford in monthly life insurance premiums. There is no one-size-fits-all solution, and the amount of cover – as well as how long it lasts for – will vary from person to person. Nevertheless, here are the main things to think about:
Covering your mortgage: Your mortgage repayment is probably your biggest single current outgoing. If you’re the main earner in your family, a mortgage is something you’re unlikely to want your loved ones to have to take responsibility for in the event of your early death, and you’ve probably already made some provision for it to be repaid in such an event. Some lenders may 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.
Covering other loans: The same goes for any 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.
Allowing for childcare expenses: 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 the unpaid responsibilities you currently perform as a parent or guardian and whether alternative, additional childcare arrangements might need to be made. Just how much cover is likely to be needed, and for what period of time, will of course depend on how many children you may have, and how old they are.
Education expenses: 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. 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 dependants 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 10 times your present salary. However, 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, there may be an argument for increasing this provision up to 25 times your annual salary.
Critical illness: Think about how much time you may need to take off from work to recuperate and the potential additional financial pressures that may bring; would you also want to make provision for private medical treatment? Read more about critical illness cover here.
Having trouble working out how much life cover you will need? Our life insurance calculator could help you out:
