How much cover do I need?
With everyone’s circumstances being different, only you know how much life insurance you’ll need. If you’re not sure about how much cover to take you should speak with an independent financial adviser.
As a guide, here are five examples of people looking for life insurance to protect the ones they love.
A couple with an interest only mortgage
Mike and Jen want to know they’ll each be financially secure if the other dies, and neither of them will be left with a mortgage to worry about.
They could take out a joint life Insurance policy to cover the outstanding amount on their mortgage.
Level term cover (joint)
How much - £250,000
How long - 20 years
How this would cover them:
If their outstanding interest-only mortgage is £250,000 and there’s 20 years left on the mortgage if either of them died during the 20 year period, their mortgage would be paid off.
If they wanted, they could take out more cover, which would provide money for other costs. If they have other cover in place already, they may need less cover.
Things to be aware of:
- If the couple are different ages or need different cover amounts then taking out a single plan each may work better for them.
- Optional critical illness cover helps if either of them is diagnosed with a specified illness.
- Joint policies close if one of you dies and the other claims, leaving the surviving policyholder without insurance. They often can’t be separated if you split up.
A couple who have just had their first child
Joe and Jack want life cover to help take care of their monthly bills, childcare and education costs if the worst should happen to either of them. They don’t have a mortgage.
They could take out two single life insurance policies.
Level term cover (single)
How much – £150,000
How long – 20 years
How this would cover them:
If they choose two 20-year policies, this would provide cover until their child is independent.
Single cover would also provide a lump sum to their child if the second partner was to die, after the first.
Things to be aware of:
- By choosing single plans, they can have different amounts and time periods for the cover.
- Alternatively, to save on money they could choose a joint policy. However, this would mean the policy pays out if one of them dies, leaving no cover for their child if the remaining partner dies.
A couple who have just bought their first house
Phil and Belinda want to cover their 25-year repayment mortgage if one of them dies before it’s due to be paid off.
Decreasing term cover (joint)
How much - £290,000
How long - 20 years
How this would cover them:
With their mortgage of £290,000, a life insurance policy where the cover provided decreases in line with their mortgage could be just right for them.
The monthly premium on decreasing term cover will be comparatively cheaper than a level term plan, as it offers less protection as the cover reduces across the term of the policy.
Things to be aware of:
- Optional critical illness cover helps if either of them is diagnosed with a specified illness.
A couple with three children
The Andersons have three children, aged 13, 10 and 9. The parents, John and Ellie, work full time and already have life cover for their mortgage. After a recent scare, they now want to make sure their family would be able to manage additional living and childcare costs if either of them were to die.
They could ‘top up’ their cover with a new single plan which would help protect their children financially until they become adults.
Level term cover (single)
How much – £100,000
How long – 9 years
How this would cover them:
A single policy each would provide the cover they want if either or both of them were to die. This would also work well if they wanted to provide different amounts of cover.
Things to be aware of:
- If they want the same cover amount and are happy the cover will only pay out if one of them dies and then cover will cease they could take out joint cover. This works out slightly cheaper than two single policies for the same cover amount and period.
- If they take out level term cover, the lump sum they choose at the start will be the amount paid out if either person dies.
A single parent who has just changed jobs
Tom has left a job that came with a death-in service life insurance policy that would have cared for his child if he died. His new job doesn’t offer life insurance, so he wants cover to provide for his child if he dies. He hopes his child will have a job and be self-sufficient in eight years’ time when she’ll be 22 years old.
Level term cover (single)
How much - £150,000
How long - 8 years
How this would cover them:
If Tom chose a policy worth £150,000 this could provide care for his daughter until she was self-sufficient.
Things to be aware of:
- Tom could choose optional critical illness cover to help if he is diagnosed with a specified illness.
But isn't life insurance expensive?
Comprehensive life insurance can feel like an unaffordable extra, especially if your budget is already stretched.
But even if you can’t afford a policy that exactly meets your needs, it’s still worth taking out some cover. And it’s possible to get some insurance for under £10 a month.
A smaller pay-out might not provide for your loved ones forever, but it would help ease a difficult time. For example, if your partner needed extra time off work, a life insurance payment could be a big help to them.
All in all, some life insurance is better than none.
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