How much life insurance cover?

Deciding whether you need life insurance is quite easy. Deciding how much life cover you need is slightly harder. A simple rule of thumb is to take out cover equalling five to ten times your annual salary.

Clearly this method is very simple and not very scientific. A better way to assess your own life insurance need is to consider likely expenses that your loved ones would face after your death. These expenses are likely to include:

Paying off a mortgage
Paying off loans and other debts
Family income needs
Emergency Funds
Family Education costs
Estate costs
and possible Inheritance Tax

If you can appreciate that if you invested a lump sum of say £250,000 with today's interest rates of around 7% you might get an annual income of say £17500 then you quickly appreciate the need for careful planning. Of course some of the capital could be used, your spouse or partner may get a job. But it's wise to make reasonable guesses and give the survivors as much breathing space as possible. Eventually you will decide on a figure that seems reasonable and with a premium that you can afford.

 

 

 

 

Bigmoney is an introducer for life and critical illness insurance to Wallace Nichols financial services who are regulated by the financial services authority number 226348.