How Much Life Insurance Cover Do I Need?
It’s important to know how much life insurance you are going to need, but before that you need to know why you need life insurance. There are several things that you need to consider and anticipate with what your demands might be in the future. Here we take a look at some ideas to think of to make sure you get the right cover for you and your loved ones.
The first steps
Before you even look at what life insurance is available, you should take note of what your personal circumstances are. This isn’t just about you (sorry! 😜) but also includes considering your family’s needs along with any other beneficiaries (those that get your stuff in your will) that you intend to have.
After this, you also want to think about your monthly budget. You need to know exactly how much cover you can afford and what would need to be covered in case of your death.
Covering your expenses
The biggest financial burden that your family will have once you pass away is your expenses. Liabilities and expenses are something that you owe, usually in the form of money.
The largest liability that most people have is their mortgage. Not only can this be a huge sum of money but also the monthly payments are often much higher than any other monthly bill. Without life insurance, many families are forced to sell their homes as it becomes unaffordable.
Even if you have a joint income, it’s often the case that the payments can’t be made on a sole income. Having a policy that can cover the remaining amount on the mortgage can be a huge relief. While it’s not law to take out life insurance when you get a mortgage, lenders may try and offer you a deal. You are under no obligation to take what they offer, make sure you find the best policy for you.
To learn more about life insurance for mortgages, take a look at “Do I Need Life Insurance For A Mortgage?” (https://bequest.com/articles/life-insurance/do-i-need-life-insurance-mortgage/).
This is going to be one of the trickiest aspects to determine as you have to try and figure out how much your family will need after you’re gone. This can be even more difficult if you’re renting or bringing in most of the household income.
Once you’re gone, your family would have to go through an adaptation period and having a lump sum payment can give them the time and space they need.
If you have young dependents, then you need to consider how they are going to be cared for if you pass away. If you play a large role in their childcare then you have to consider whether professional childcare would need to be paid for.
Beyond childcare, a lot of parents think of education. Whether this is a private school or paying for their university fees, you may want to consider adding a certain amount for them into your life insurance policy 👪
A dangerous myth
A dangerous myth is that your debts die with you.
But it’s NOT true 😲
In fact, they come out of your estate (all the money or property you own), but life insurance can cover these debts and leave your loved ones with money left over. This is especially important if you have any joint debts, as these will become the sole liability of your partner.
You need to add all of these and include any type of debt that you have, including loans, credit cards, tax or anything else that you may owe. With the right life insurance, you’ll be able to clear all of these and make life a lot simpler for your loved ones.
How much life insurance do you need? Well, everyone is different. Also, not everyone has the luxury of being able to pay a high premium to cover everything they may need. Sometimes you need to prioritise what needs to be paid off and often a mortgage will come near the top of that list.
If you’re still unsure, asking your friends and family, or doing some more research could be helpful. You want to be able to put your family in the best situation possible after you’re gone. Also, keep in mind that with Bequest, you can make changes to your policy throughout the term. Your policy does not have to be stagnant, but can change when your life changes.