Does that Cover it? Figure out how much Cover you need

Figuring out how much cover you need is straight forward provided you have all the facts. It is simply a question of knowing what income your dependents will need, what cover you currently have , and then doing the calculation to decide how much additional cover you require and can afford. First, figure out what your debts are. What is the balance on your mortgage? How about your credit card? Do you have any personal loans or other outstanding obligations? Additionally, consider the cost of your own funeral and any other expenses that may arise upon your death. You should have this amount of cover to ensure your dependents are not left with any debt Then, figure out what expenses your dependents would need covered each month in the event you died. These range from the costs of basic necessities, like food and utility payments, to somewhat more extraordinary expenses, like the cost of a child’s education. You will therefore need cover that will provide a monthly income to meet these expenses. If you assume that any lump sum pay out from your insurance policy can be invested to generate interest at 5%, then you need cover equal to 20 times your dependents expenses. Quite a lot of cover. i.e. If your dependents need £1,000 per month, then £1,000 per month equals £12,000 per year. 20 times this equals cover of £240,000 before tax. Then, consider the cover you already have. Does your employer provide a ‘death in service’ payout? (a lump sum that is a multiple of up to four times your annual salary at death) Do you have any other life insurance policies? How much cover do these provide? By adding together the cover you need for your debts and to provide a monthly income and then deducting the cover you already have, you arrive at the amount of additional cover necessary to protect your family in the event of your death. One must then consider whether or not inflation should be a factor in your insurance purchase. If your insurance is merely to pay off your debts, your mortgage is almost certainly a fixed rate that will be unaffected by inflation, and you do not need to make this consideration. However, if you are considering providing for your family, remember that inflation will affect expenses. In order to maintain your dependants’ current lifestyle, you will need to make sure your policy is linked to inflation. In the real world, most people find it difficult to pay for cover that eliminates all debt and provides a full inflation linked income for their dependents. It is a matter of knowing what your dependents need and how much you can afford to pay each month and striking a balance. The absolute worse thing that you can do is to leave your dependents with no cover. Any amount of cover is better than none but as a minimum you might aim to have enough cover to clear all your debts. You certainly need to find out how much life Insurance cover will cost you. Have a no obligation discussion with one of our Calm Protect team who are trained to answer your questions and they will provide you with a quote. They will enable you to decide what is best for you. For a discussion fill out our form and they will contact you