How much life insurance cover do I need?

How much life insurance is truly enough? That’s a broad question that is entirely subjective, so it’s difficult to provide a definitive answer. On one hand, you want to ensure your family is left with a sufficient amount of money, but on the other, you don’t want to be paying any more than you need each month in premiums.

The main thing to keep in mind is how comfortable you’d want your loved ones to be if you were no longer around. Therefore, only you know how much life insurance you’ll need.

In this guide, we'll explain how you can determine how much cover you may need as well as the types of policies available.

What does life insurance cover?

The main purpose of life insurance cover is to provide financial support for your loved ones if you die at any stage. It can also be used to pay off debts or other costs that may arise when someone dies. 

Typically, your insurer pays out a cash lump sum to your family when you die. This money could be used to cover a whole range of future payments, such as:

Types of life insurance cover

Some insurance policies are designed to pay a fixed amount upon death, regardless of how long it takes for the person to pass away. This is often known as a whole of life policy.

Other types of cover will pay out as long as you die within a certain period of time, i.e 20 years. This is often known as a term life policy.

Whole life insurance 

Whole life insurance pays out a fixed sum regardless of when you die. The payout value and cost of your premiums remain the same throughout the policy, unless you choose to include indexation.

One downside is that whole life insurance cover is typically more expensive than other types of policies. However, as you are covered permanently, it provides good value for money in the long run and will almost certainly pay out more than you will pay in premiums.

Term life insurance

The most common type of life insurance, this provides a lump sum benefit if you die within the policy term. When you apply for your policy, you choose the length of the term and payout amount to suit your requirements and budget.

Premiums for term life insurance are usually cheaper than whole life cover, however you are protected on a temporary basis. Once you reach the policy term, your cover expires.

There are 3 main types of term life insurance cover:
 

• Level - both the cost of your premiums and payout amount remain the same throughout the policy term.
   

• Decreasing - designed to cover a mortgage and other large payments. The payout value decreases throughout the term of the policy.
   

• Increasing - this type of cover protects the payout value from inflation by increasing the value over time.
   

Joint life insurance

Joint life insurance can protect both you and your partner, depending on who dies first. It can also help them pay off debts and other costs they may have incurred because of the loss of income from your death.

A joint policy covers two people under a single policy, paying out after the death of the first person.. It’s generally cheaper than taking out separate policies for you and your partner.

Critical illness insurance

 Although critical illness cover won't cover you from death, it can be a valuable form of protection for you and your family. This type of policy pays out if you are diagnosed with a serious illness, injury or disability. This can include heart attacks, strokes, certain types of cancer, etc. Learn more about critical illness insurance.

Work out what you would like to cover

Everyone’s situation is unique. Many of our customers want to make sure debts are covered (such as a mortgage) to give financial protection to their family if they were to pass away. However, there are some situations where having life insurance isn't necessary.

Instead of focusing on the numbers right away, you may be better off deciding what you would like to cover. Working out why you need cover will give you a good starting place to decide what cover you need and how much. 

This might include things like:

Your mortgage

If you have a mortgage in place, your family or loved ones may need to pay back the remaining balance. To assist with this, you could look into purchasing mortgage cover, which is a cost-effective option specifically for mortgages.

If you have a mortgage with another person, like your partner, for example, you may want to consider joint life insurance. 

Your family

If you have family and/or loved ones, then making sure they're taken care of is probably top of your list. You can do this by taking out family life insurance. Family life insurance is available as a lump sum payout or a monthly/yearly allowance.

When deciding an amount to be insured for, it's important to total up expenses like bills, rent, childcare, education costs etc. Once you have this figure, you'll have a rough idea on how much cover you need. 

Any other debts

If you have outstanding debts, like credit cards or loans, you may want to consider protecting them with decreasing term life insurance to help ensure that the debt is paid off if you were to die. Learn more about decreasing term life insurance.

Your health and lifestyle

Protecting your health and lifestyle is something that should be considered by most people. Making sure you can help pay the bills if you become too ill to work can bring valuable peace of mind.

Critical illness cover will pay out a lump sum for eligible claims, to help you get back on your feet if you are diagnosed with a critical illness like cancer, a heart attack or a stroke.

Another option is Income Protection, which is like a sick pay policy. This aims to pay out up to 65% of your usual monthly salary when you are signed off sick by a doctor. Learn more about income protection.

Your business

If you have a limited company, you may have things that need protecting (including yourself!) Please take a look at our options for business protection for more information.

There are a few things you should consider when deciding how much life insurance cover you need:

What is your budget? - It's important you decide on an amount of cover you can afford, otherwise you will not be able to pay for premiums. Should this happen, your insurer may end your cover early, in which case you won't receive any money for the premiums paid previously.

Your monthly income - it's likely you'll need the same amount of cover as your monthly income, or a multiple of it

How much savings your family has - having savings to fall back on may mean that less cover is needed. However, not everyone wants to dip into savings and would therefore not factor them in when deciding how much cover is needed.

Do you have any outstanding payments? - debts and loans won't disappear when you die, instead your family will be expected to cover costs such as a mortgage. In this case, you may want to take out enough cover to help your family pay these off.

Once you’ve given this information some thought, it’s then really easy to arrange and compare life insurance online. Over the years, life insurance brokers have streamlined application processes, so it can take as little as half an hour to set up a Life Insurance policy online.

How much does life insurance cover cost?

There are several factors that can affect the cost of your premiums for life insurance cover, such as:

• Age - life insurance cover tends to be more expensive if you buy when you're older.

• Health - premiums will be higher if you're in poor health or have a medical condition. It can also depend on lifestyle factors, such as if you are a smoker. Your family medical history can also have an impact on premiums.

• The type of policy you choose - premiums can differ depending on the type of policy you choose. Premiums for whole life insurance are generally more expensive than term policies, as they offer a guaranteed payout.

• The amount of cover - the more cover you take out, the higher you'll pay for premiums.

Opting for level term life cover will cost more than decreasing term life cover, as the payout amount doesn’t reduce over time.

We shop around

At Cavendish, we’re committed to providing our customers with the information they need to make an informed choice about what kind of policy is right for them. We have plenty of useful information and guides on our website to help you navigate your way.

If you're ready to buy life insurance cover, why not apply for a quote through Cavendish Online? We'll help you find a policy that's both affordable and suits your family's needs.

We can help you find the best and most affordable option for your individual circumstances with products from leading financial service providers and the best value possible with minimal charge amounts.