How much cover do I need?

There are no magical figures to be given as an answer to this question, as it all depends on your individual circumstances.  However there are things to be considered which may help you reach an overall amount.

If either of you were to die, would there be a serious financial consequence for the family because the household is dependant on your combined income.  If this is the case then this is an area to be explored.

Over what length of time would your dependants need your salary replacing?  If you have young children then the length of time or the term may be until the youngest has finished with education and then can support themselves.

The partners that stay at home with the children may also need to be covered; if the children are young then a childminder would need to be employed to enable the other partner to go to work.  The costs of this could have a serious impact on the family’s standard of living if not covered by a life insurance policy.

Look at your monthly bills and expenditure that would be needed to run the household as it is today and then multiply it by the length of time you need the cover.  This will then give you a basis to start from.

In both the above cases inflation needs to be considered as prices constantly rise and the income that provided a  reasonable standard of living today may not in ten years time.

So an amount will need to be considered to cover this aspect.

Will there be any outstanding loans that would need to be paid such as a mortgage or car loan.  Funeral costs also need to be added in.

Once you have come to a final figure there may be things you can do to reduce it.

If you have a policy covering your mortgage then the amount covered needs subtracting from the above figure.  However please check the estimated amount that your mortgage policy is going to produce.  If you have moved or increased the mortgage for home improvements this policy may not have been kept up to date and therefore it may not cover the whole mortgage.

Loans taken out may include insurance that pays the loan off should a premature death occur.  So it is worth while checking your paperwork.  If this is the case subtract the loan amount from the above figure

If you already have life insurance policies deduct their sum assured from the total arrived at above.

Your employer may provide a death in service benefit as a multiple of your salary, ask at work as this is cover you already have in place.  However remember if you change jobs you may lose this cover, check with any new employer if this cover is in place and how much is provided 

If you have a pension fund what does this provide for your family on death this amount can also be taken off the final total if a lump sum or off the income needed to run the household if a regular amount is to be received?

Once you have calculated your capital needs and short, medium and longer-term income requirements you can use a lump-sum life insurance policy to protect your family.