How much cover do you need on your life insurance?
Life insurance is the best way to make sure that your family can support themselves in the event of your death. Things like mortgages and other debts can be a huge burden on your financial dependents if you don't take the right measures to help them bear the load. You should also consider things like the cost of living and other expenses that they will have to deal with if you are no longer around.
Many people take out what is known as mortgage protection insurance that will cover the cost of their mortgages in the event of their death. This is because mortgages are often the largest monthly expense that families have to deal with.
If you are the sole breadwinner in your family, it is unlikely that your remaining family members will be able to afford to stay in your property if your mortgage is still to be paid when you die.
Mortgage protection life insurance ensures that you are covered for the extent of your mortgage's term. This means that your life insurance term will be the same as that of your mortgage.
The most popular option for people who are looking to use life insurance in this way is known as decreasing term life insurance. This type of insurance will cover the length of your mortgage and will gradually decrease over time at a rate equal to the amount of debt that you have. This means that the payout will decrease, as will the premiums because your mortgage debt is become smaller as you pay it off.
If your mortgage is interest only, then you should factor in the amount that is still owed for the capital debt. This is because this will need to be paid off before the mortgage can be considered done. It is therefore important to be aware of this and the level of interest when deciding how much to cover yourself for.
Similarly to paying off mortgages with life insurance if you have other debts, then you should also consider using decreasing term life insurance. These debts will be paid off in much the same way as your mortgage would be and having this safety net in place for your loved ones is the best way to make sure that they don't suffer as a result of debts that you may leave behind.
Living Costs of Your Family
In addition to the debts that you still have to pay off, you should also consider how much it will cost your family to continue with their day to day costs. This is especially important if you are the main source of income in your household. Even if you and your partner are both in work and earning, it can still be a good idea to factor these costs in as it may be unlikely that they will be able to maintain their expenses without your financial contribution.
Many insurance companies offer additional extras such as critical illness cover in the case of you falling severely unwell. This means that if you are unable to work, the drop in your income will be covered on your insurance policy.
It is possible to take out a separate policy to cover this type of eventuality but when you take out this cover as an extra to your life insurance it can often be cheaper.
Critical illness premiums will be higher than normal premiums so it is worth considering whether or not you will need this. Of course we can never be sure of what the future holds but if you are from a family with a history of heart conditions, you may want to go for this add on. All critical illness add-ons are required to cover an industry decide minimum. It is important to find out exactly how extensive a critical illness policy is before you take out this type of cover.