Life insurance is a very important financial asset to have. It provides security for your loved ones in case the worst should happen and you’re no longer around. If that happened, you would want your family to be able to maintain a certain standard of living, and life insurance can help provide that. This includes being able to pay off a mortgage, debts, and help with your children’s future education. Not having adequate cover in place can leave loved ones with financial strain at an already difficult time.
This is why it’s vital to carefully consider cover that meets your needs and budget. Policies can vary widely in what they offer to you, so understanding what type of cover best suits you and your family can provide some long-term peace of mind. We’ve teamed up with Smart Insurance to find out what you need to keep in mind before buying a life insurance policy. You can view their website here.
Main Considerations When Deciding How Much Life Insurance You Need
Mortgage Considerations
One of the biggest debts a person might have is a mortgage. If you passed away, the burden of paying the mortgage off may fall solely on your partner. Having said that, you can offer some protection for your family against this financial strain by choosing the right cover. Look for policies that offer personalised protection, with a benefit amount that provides adequate cover against the remaining balance. Not only does this free up a lot of finances, but it also ensures your family will be able to stay in their home.
Children's Education
Paying college tuition can be extremely stressful. From tuition fees to books and supplies, the costs can really add up into the thousands. It can be hard enough to budget for these expenses as is. By looking to certain policies, which offer optional extras like Children’s Cover, you can tailor your policy to provide an extra level of protection if something unexpected were to happen to you. Factoring in the cost of these extras can allow you more freedom in confronting the everyday expenses of the kids.
Family and Income Protection
If you’re no longer around, have you ever thought about how much your family will need to cover bills, obligations and day-to-day expenses? Life insurance can help protect your loved ones against this lost income. How much you choose to take out depends on your individual circumstances and commitments, but a general rule-of-thumb is to opt for somewhere in the region of 5 to 10 times your annual salary.
Other Debts
Family life is hectic. Aside from a mortgage, you might also have credit card debt, car loans, or personal loans. Factoring in these obligations is key to protect your family from these debts should the worst happen to you.
This can also make it hard to calculate just how much is needed. Consider choosing an age-based policy, where your monthly premium will start at a lower amount and recalculated each year based on your age and any benefit amount increases. This can be helpful for those who want to protect their benefit amount against the rising cost-of-living.
If you prefer a more straightforward choice, consider a level-based policy. This could be a good option if you’d like to know exactly what you’ll be paying now and in the future. Your monthly costs will stay the same and you will have a choice of a fixed term after which your cover will come to an end.
Other Types of Life Insurance
It’s also important to consider if you might need additional coverage, such as critical illness insurance, or children’s coverage. Usually these are an add-on to your existing life insurance policy.
Critical Illness Cover
Critical Illness Cover provides a lump sum if you suffer from a specified critical illness, providing much needed relief from medical bills, or loss of income. Having critical illness cover built into your policy can allow you to focus on recovery without the added financial strain.
Children's Cover
As mentioned earlier, you may also want to consider if you need children’s cover, which gives a benefit amount if your child suffers a specified serious illness or injury. This can help with medical bills, home modifications or ongoing care if needed. If circumstances change, you can at least have some peace of mind that your children will have continued financial support.
Where do you stand right now? Things to check before you secure a policy.
Before committing to a life insurance policy, assess your existing financial situation:
- Do you have life insurance from your employer? Cover from your workplace may not always provide long-term financial security, but it may impact what’s needed for your chosen benefit amount.
- What savings, investments or assets do you have that could contribute to mortgage repayments or other bills and debts? This can provide your loved ones with additional protection without solely relying on personal savings.
- What is your partner’s financial situation? Reviewing your household income can help you determine the right level of cover.
Life Insurance Payouts and Inheritance Tax
When you consider all of these things, one big thing to bear in mind is that your life insurance payout may be subject to inheritance tax if it exceeds the stated threshold. Therefore, the amount your family receives may not be as high as you had hoped. You can, however, place your policy in a trust. By speaking with a financial advisor or solicitor for advice, this can help your loved ones receive the full payout without other tax obligations.
Use a Life Insurance Calculator
There are a lot of things to consider when securing a life insurance policy. With Smart Insurance, you can make it easier by using their life insurance calculator to get a realistic picture of how much cover you might need.
Just answer a few simple questions and you’ll have a much clearer picture of your circumstances, and how much a policy may cost.
By carefully evaluating your current position and what your family may need in the future, you can help protect the life you’ve built together and ensure they’re well-protected with the right life insurance cover.
