It can be very difficult to work out exactly how much life cover is sufficient to protect your family should you die or contract a life threatening illness. Life cover can provide invaluable protection, but prior to taking out a policy you need to think carefully about a number of different factors including covering any mortgage or loan payments, paying school fees or costs for higher education, and paying for childcare. In addition you need to think about how much money you would need to pay for day-to-day living expenses, council tax and utility bills.
When deciding on a suitable amount for your life cover another very important issue to bear in mind is how much you can afford to pay. The bigger the pay-out that you require then the higher the premium will be, and too high a premium may result in you struggling financially. This could lead you to take out a policy that provides inadequate cover, but nonetheless is affordable.
Life insurance cover provides an important role in providing for your family should the worst happen. Think about all the outgoings that your family would find it hard to pay if you were no longer around; these include utility bills, the cost of running a car, food bills, plus the cost of any debts that you may have incurred. Many insurance providers recommend that you take out cover that is at least ten times your annual salary, but this is dependent upon the size of your family and the size of your outgoings. It may be more appropriate to take out cover that is between 15 and 20 times your annual salary if your commitments are particularly large.
It is worthwhile checking with your employer to see what, if any, death-in-service benefits you are entitled to. If you die during the term of your employment some companies will pay out the equivalent of four times your salary; a figure that you should take into account when deciding how much life cover you actually need. However, remember that you will need to adjust your life insurance if you switch employers or retire.
Life insurance isn’t just aimed at those people who are employed outside of the home. A stay-at-home parent does in fact make an important contribution to the household finances by providing childcare; these costs would have to be covered by the remaining parent if they wished to continue working.
Your biggest monthly outgoing is likely to be your mortgage so if you are the breadwinner in the family then you need to take this payment into account first and foremost when deciding how much life cover you will need. By taking out mortgage protection life insurance you can have peace of mind knowing that if you do die your mortgage will be paid off in full. This type of policy runs alongside your mortgage, and the majority of people with repayment mortgages opt for decreasing life policies. These types of policies pay out less over time as the amount owing on your mortgage decreases. However, if you have an interest-only mortgage it will be necessary to work out both the interest and capital as you are only paying interest on the mortgage and not the capital debt.
If you have other large debts in addition to your mortgage, including loans and debts incurred on credit cards, then make sure that you take out enough cover to pay off these debts should you die.
Most life insurance providers also offer critical illness cover in addition to life cover. Critical illness cover means that your family will be financially protected should you contract a serious illness and are therefore unable to work. Cancer and heart disease are included in the illnesses that are covered by critical illness cover as stipulated by industry regulations, although all policies vary and many cover a wide range of conditions. Be sure to check the small print before taking out your policy to see what exactly is covered.
It is worth bearing in mind that it is often more cost effective if you take out life insurance and critical illness cover with the same provider rather than to take out two separate polices with different companies. Also note that critical illness premiums are most often more expensive than life insurance premiums as it is statistically more likely that you will suffer a serious illness before the age of sixty-five than you are to die. For this reason the majority of people tend to take out critical illness cover up to the value of their mortgage, or up to three times their salary.
When you have a life insurance or critical illness policy in place it is important that you review it on a regular basis as your situation can change over time, for example, you may add to your family, move to a larger or smaller property, or get divorced. Changes like this may mean that you need to increase or reduce the cover that you already have. To summarise, working out how much life insurance you need is an ongoing task and one that should be completed at regular intervals to ensure that you are adequately covered should the worst happen.