How much life insurance cover do I need?

Life insurance is an important way to protect your family in the event of your passing. However, buying life insurance can be a daunting task, which is why many people seek assistance from someone who knows the industry inside out. 

On one hand you want to ensure your family are left with a sufficient amount of money, but on the other hand you don’t want to be paying any more than you need to each month in premiums. This is why it’s important to ensure that the cover you apply for is right for you.

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 cover pays out a fixed sum regardless of when you die. The payout value and cost of your premiums remains 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.

How much cover should I buy?

Everyone’s situation is unique. There are many reasons why you might want life insurance, including providing financial security for your family, helping pay off debts or paying for funeral costs. However, there are some situations where having life insurance isn't necessary.

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 select 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.
   

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

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

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.