Life insurance is one of the most effective tools for ensuring your loved ones and dependents are financially protected should you die. The question is how much life insurance do you really need? Life insurance isn’t a one-size-fits-all solution. Everyone’s personal and financial circumstances are different. Which is why it’s vital to ensure that you accurately calculate the amount of cover you need.
Acumen Financial Partnership is here to offer some invaluable life insurance advice to ensure you get the most comprehensive protection at the most cost-effective price.
Do I need life insurance?
Taking out life insurance is a balancing act of ensuring all your debts and your family’s ongoing expenses are catered for long after you’re gone, weighed up against the cost of the policy and ensuring you’re not paying over the odds in the long term. First and foremost, it’s essential to ensure you are fully protected and leave no stone unturned to ensure your loved ones aren’t burdened with debts after you’re gone.
It’s important to bear in mind that many Britons actually underestimate the amount of life insurance cover they need. Therefore, it’s worth taking some time to carefully consider all the financial variables that need to be covered if you were to die unexpectedly. More on this later, when we’ll be discussing some of the main factors to consider when weighing up how much life insurance cover to take out.
Finding affordable life insurance
Let’s take a quick look at the main types of life insurance. Level term life insurance pays out a set amount if you die during a set time. The premiums and amount of cover remain the same throughout the policy term. Mortgage decreasing-term life insurance pays out according to the sum remaining on your mortgage. Then there is also whole of life insurance, which can help to mitigate inheritance tax costs.
The most affordable life insurance option for the vast majority of people is level term insurance. With this type of policy you pay a monthly premium and a set amount is paid out if you die within an agreed period of time. For instance, this could be £200,000 pounds if you die within the next 20 years. As you might expect, the longer the term and the more cover you want, the higher the fees will be.
It’s worth shopping around for the best policy. We would strongly recommend talking to an independent financial advisor to assist you with this process. An IFA can provide a whole of market perspective that will enable you to find the most cost-effective policy for you. They will also be able to offer invaluable advice and assistance to ensure you secure the most comprehensive protection for your circumstances.
Life insurance advice
As a general rule of thumb, some experts advise taking out cover that amounts to ten times the main breadwinners’ annual income. However, this is a crude estimate at best. There are various online life insurance calculators, such as Aviva’s, that you may want to try as a first port of call. We would also recommend considering the following expenses before ultimately seeking professional life insurance advice.
As the largest debt most of us will ever face, it’s reassuring to know that your mortgage can be paid off if you die. So it’s vital to ensure that your lump sum payout is large enough to clear your mortgage as a minimum.
Of course, your mortgage is unlikely to be the only debt you accrue in life. Therefore, it’s worth factoring in any additional credit card and loan debts when deciding the amount of life insurance cover you need.
Another major consideration is how your family will pay for regular outgoings in your absence. Everything from food and utility bills to running a car, education, clothing, holidays and birthdays need to be accounted for.
Critical illness cover can sometimes be added to your life insurance policy. This can provide extra peace of mind that your family is protected should a serious illness prevent you from working.
Of course, one expense that few of us want to consider is funeral costs. To soften the financial burden, these costs can either be factored into your policy.
For professional and impartial life insurance advice, please contact Acumen today by calling 0151 520 4353 or email us at [email protected].
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