How much Life Insurance cover do I need?
Deciding how much cover you need
Calculating how much Life Insurance cover you need can be a relatively straightforward process. You should take into consideration the expenses and living costs which your loved ones might currently rely on you for, now, and in the future.
To get an accurate quote for Life Insurance, you’re going to need an idea of how much cover you’d like. Too much, and you could be paying over the odds for life cover; too little and you might find the cover doesn’t provide enough for your loved ones if you died.
What to consider
To avoid feeling overwhelmed, we’ve prepared a breakdown of what you might want to consider when figuring out how much Life Insurance cover you really need. Our handy guide helps to break down these costs and help you come to an informed decision about how much Life Insurance cover you want to take out.
To start off, have a think about these major expenses and financial commitments, which your loved ones might not be able to pay if you died:
Mortgage and debts
How much is remaining on the balance of your mortgage and how long is left until it’s paid off? Perhaps you have loans, large credit card bills or car finance you’d want to clear with a Life Insurance payout. Read more about how Life Insurance could be used to cover your mortgage or pay off debts.
Think about the annual cost of raising your children until they’re old enough to stand on their own two feet. According to a report by Loughborough University, the average cost for a family to raise a child to 18 is £75,436, excluding childcare and rent. Some of the greatest costs can include childcare, education, food and clothing, and holidays. You might also consider expenses for when your children are older, such as buying their first car, first home or even leaving something for their wedding day. Find out more about what to consider when it comes to your children and the amount of Life Insurance you need.
Does your partner rely on you for income or to help pay the bills? It could be that your income allows them to work part-time or be a stay-at-home parent. If you were gone, a Life Insurance payout could help top up their income to continue to pay their day-to-day living costs.
Are you a big spender or do you prefer the simple things in life? If your family is used to exotic holidays and new cars, you might want to consider leaving them enough for them to maintain this quality of life.
If you don’t have a lot of savings or other capital like property, Life Insurance could allow you to leave a lump sum for your loved ones to inherit. It’s totally up to you how much you’d like to leave, but remember, if your estate is worth more than £325,000 your loved ones could be liable for Inheritance Tax.
You might consider leaving enough to cover your funeral, so your loved ones aren’t out of pocket. Funerals can be relatively low cost, depending on your wishes. The Money Advice Service suggests you could set aside £1,600 for a direct cremation without a service. But the average funeral now costs upwards of £4,078 with the basics including a coffin, service, flowers, and funeral director.
 Money Advice Service, 2018, How much does a funeral cost? : https://www.moneyadviceservice.org.uk/en/articles/how-much-does-a-funeral-cost
Life Insurance for homeowners
Along with having children, becoming a home owner is one of the major things which drive people to start thinking about insurance. Mortgage repayments usually also constitute a person’s largest single monthly outgoing, so if you’re the one contributing most or all of the mortgage, you’ll want to know those payments will be covered in the event of your death.
It’s likely that your mortgage provider will try and bundle Mortgage Protection Life Insurance in with your mortgage itself, but that might not be the best option for you if you’re needing to cover other factors. Remember you can shop around and compare offers to find a policy and premium that work best for you.
There are also different types of policy that might work better depending on the type of mortgage you have. If you opt for a Decreasing Term Life policy, this will decrease in line with a mortgage that has a 6% interest rate.
If you have an interest-only mortgage, a Level Term policy could work better for you, if you ensure you have enough life cover to secure the outstanding mortgage amount. We explain more about the differences in these policies a little further down.
Life Insurance if you have debts
Something to consider when thinking about how much Life Insurance you need is the amount of outstanding debt you might leave behind.
Debt is a reality of life for many Brits nowadays, and while it’s easier to find support in managing debt, things still need to be paid off and will be subtracted from your estate when you die.
Because of this, building extra cover into your Life Insurance policy to account for personal loans, credit cards or even a student loan can help give your dependants an extra cash buffer even after your creditors have been satisfied.
It might be unpleasant to face up to, but the costs associated with your funeral could also fall under this heading.
Life Insurance for parents
As mentioned above, nothing inspires the need to make sure the next generation is looked after better than contributing to that generation yourself. Assessing the needs of your family can work out as a good indicator of how to calculate how much Life Insurance you need.
One rule of thumb that gets thrown about a lot is to insure yourself for a number of years, based on your existing salary. Say, insuring for ten times your salary would reasonably work out as ten years of insurance to support your family as it stands.
However, this can be an oversimplification. The amount of money it takes to keep a newborn baby happy is unlikely to stack up to the needs of a teenager or university student. Consider the length of your policy and how your family would come to rely on you for that entire term.
Keep in mind also that you may not be planning to remain on the same salary for the whole duration of your insurance term, or indeed for the rest of your life. Keep a realistic attitude when it comes to what your family may come to depend on you for, and factor in extra expenditure like childcare which would become relevant if your family only had one parent.
Which type of Life Insurance do you need?
Beagle Street offers two types of Term Life Insurance – either Level Term or Decreasing Term. The difference between these is to do with the amount that will be paid out if you die. With a Level Term policy, the amount paid out if you die remains the same throughout the policy. For Decreasing Term, the payout your loved ones would receive decreases over the policy term in line with a mortgage of 6%. We explain more about the differences between Level Term and Decreasing Term Life Insurance in our handy guide.
Decreasing Term Life Insurance
The Life Insurance premiums for Decreasing Term will be less than those for an equivalent cover amount and length for a Level term policy as the amount you are covered for will reduce over time. This is typically used for covering debts which reduce and are paid off over time, such as a mortgage.
Extras you can add to your Life Insurance
Critical Illness Cover
Critical Illness Cover can be bought in addition to your existing Life Insurance. It pays out an extra cash sum if you develop a recognised critical condition. This can be used to replace lost income and could help your loved ones care for you and meet any extra charges incurred by maintaining your quality of life and coping with the condition.
Child Critical Illness Cover
You could also choose to add Child Critical Illness Cover to your policy, which pays out if your child is diagnosed with a critical illness before the age of 18. It could allow you to take extended time off from work to care for your child, or help to pay for medical costs and treatments.
Reviewing your Life Insurance needs
Once you’ve set up your Life Insurance just how you need it, don’t rest on your laurels. Your circumstances will change over time, so review your insurance accordingly.
Get into the habit of reviewing your insurance needs every few years, or after a big life change like moving house, having more children or even a divorce. This gets you into the habit of better predicting how your life might develop, leading to insurance cover which is always as closely aligned with your needs as possible.
Maximum cover limits
One final thing to factor in is the maximum amount of cover Beagle Street can offer you, depending on your age. While we can offer up to £750,000 if you’re aged 40 and under, there is a decreasing scale of cover available after this age.
|Age||Up to 40||41-50||51-55||56-60||61-65|
Critical Illness Cover
|Age||Up to 40||41-50||51-55||56-60||61-65|
At Beagle Street, we’re committed to helping people find affordable Life Insurance that suits their needs. Has this got you thinking about how to best protect your loved ones? Get in touch today and talk to one of our friendly team, or get a quick Life Insurance quote online now.