If you’re considering buying life insurance, one of the first steps is to decide how much life insurance you need. This is entirely subjective, but a basic sum can give you some idea of what may be a good amount:
All Financial Commitments minus Existing Assets (that could be sold)
equals Your Life Insurance Requirements
In very basic terms, to understand how much life insurance you’ll need, you need to understand how comfortable you’d want your loved ones to be if you were no longer around. Many of our customers want to make sure big debts (such as mortgages, for example) are covered to give financial protection to their family.
There’s a few other methods for working out a figure:
By Multiplying Your Income
This is a rule of thumb here and inherently light on detail, as it’s different for everyone. Some people it might be 4 times, or even 8 times - it’s what you as an individual needs, minus the assets your family could sell on.
By Working Out Your ‘D.I.M.E’
D.I.M.E stands for Debt, Income, Mortgage and Education and makes you add these amounts up:
Debt: How much debt would you leave to your family? Remember, some debts don’t carry on after you die.
Income: Multiply your income by the number of years you want to provide income replacement for your family.
Mortgage: Add the remaining balance on any existing mortgage(s) you have.
Education: Add an amount that covers any university fees or specialist training you’d want set aside for any children you have.
Once you have this figure, you can then subtract any existing savings you have as well as any other insurances you may have from work, like ‘Death In Service’ benefit.
‘Whole-of-life’ insurance policies pay out regardless of when you die, as long as you keep up with your premium payments. This type of cover is typically of interest if you are determined to leave some form of inheritance to your family, or if you want to help with your funeral costs.
Naturally, these policies are typically more expensive than term insurance policies since as long as you keep paying your premiums, the insurer will always have to pay out, whereas you may outlive a term insurance policy.
If you’re not sure, speak to us over the phone or through live chat, and we’ll be able to give you all the information you need to help you decide what’s best for you.