Are you considering getting life insurance cover, but unsure how much to take out? Life insurance helps you protect your dependents against financial hardships, but the amount of cover you need is different for different people. Your insurance must cover you for any expenses that you leave behind. The following are some of these expenses you will need to make sure are covered.
- The most obvious expense which should definitely be covered by your life insurance is income replacement. Your partner, children, or other dependants will rely on your income to pay their bills, and ideally you want them to be able to continue with the same standard of living they have while you are alive. It can be difficult to calculate your family's future life and how much of your salary they will need to continue to receive, without your own personal spending, in order to continue their lifestyle until they can make the necessary adjustments to provide for themselves. A useful rule of thumb is ten times the amount of your current annual salary, but it could be higher than that if you have a large family.
- For most people the number one expense is a mortgage. You don't want your family to have to keep paying for this if you pass away before your time. Make sure, if possible, that your life insurance will cover both capital and interest repayments on your mortgage.
- If you have any other outstanding bank loans or similar debts, check that they are covered by your life insurance. Some loans may come with some form of life insurance; but others won't.
- If you have children or other dependants, you have responsibilities in addition to the income you bring to the family. You should consider the cost of childcare, or home care for family members who are unable to look after themselves. Consider how much additional childcare might be needed, this will depend on the ages and number of children, or the level of care needed for other family members.
- Again, if you have children, you will want to ensure that your life insurance will cover the costs of their education. School fees and university expenses can be a huge cost to a parent, and you want to make sure these will be covered in the event of your death.
Adding all these costs together, plus any other costs you can think of, you will find an appropriate figure for how much life cover is necessary. Good luck!