How much should I insure my life for?
10 May 2009 Tell a Friend
'How much should I insure my life for' is a question that many of us will consider when looking at our future financial planning. Life insurance can be a sensitive subject, and it's important that if you are considering taking out a policy, you think carefully about why you are doing so and assess the financial priorities in the event of your death.
Everyone's circumstances are unique, and there isn't one policy that will meet every individual's needs. What to prioritise can be a difficult decision, you may simply be worried about the cost of your funeral for those you leave behind, or your concerns may stretch to financial stability for your partner and children years into the future. Therefore the importance of understanding the amount you should insure your life for cannot really be understated. An inadequate or unsuitable policy can actually even cause difficulty after your death, as opposed to helping those who are left behind.
How much life cover do I need?
The first step is to try and make a list of the financial hurdles that may face a loved one in the event that you die prematurely. Many people want to simply have sufficient life insurance that they can leave enough to cover the mortgage - often the biggest debt facing a household. In this case it could be worthwhile making sure any sum covers not just what's outstanding but possibly also any fee that might be incurred for settling the mortgage debt a little early (the ?early redemption penalty?).
The question 'How much should I insure my life for?' is an extremely difficult one, because you have to actually plan according to a long-term future that, of course, you cannot predict. If you've got children, you may want to consider whether they'll want to go to university, for example. Other considerations include paying off a car loan or other secured or unsecured debt.
The amount of life cover you want - that is, the amount of money the insurance company would pay out should you die - can be related to your age and the number and age of your dependants. The amount (or 'sum insured') may also be influenced by any benefits an employer might be providing, so you need to balance your employee life insurance and pension scheme (if you participate in one) against your personal life cover requirements. Remember as you grow older and your circumstances alter, your life insurance may need to change as well.
When you insure your life you'll often be asked to choose between various types of cover.