When deciding on the appropriate level of insurance cover, there’s no one-size-fits-all solution. The insurance that you need will be dependent on a number of variables.
Many question whether life insurance is necessary for them. While it’s commonly believed that life insurance is only essential if you have a family who depend on your income, this is far from true. In fact, everyone can benefit from life insurance. As well as typical uses, such as protecting your income, it can also cover funeral costs, settle outstanding debts and even provide financial support to charitable causes that are important to you.
Factors that influence how much insurance you need
The main things you’ll need to take into consideration when looking at how much life insurance you need are:
- Income
- Debts
- Savings
- Existing cover
- The size of your family
- Future needs
Let’s take a look at what you need to consider in relation to each.
How to calculate life insurance coverage
- Income. As a general guideline, the more you earn, the more income cover you need if you need to sustain the same level during periods of unemployment. Insurance specialists typically suggest taking out a policy that covers at least 10 times your annual salary.
- Debts. You’ll want to cover any outstanding loans, such as mortgage balances, car loans, credit card balances and student loans, for example. This provides peace of mind that your family won’t have to take them on in the event of your death.
- Savings. Review your existing assets to help you calculate how much cover you need. Include all significant savings and investments.
- Existing cover. As you’re able to have more than one policy, if you have existing life insurance cover, this should be taken into consideration when deciding what additional coverage you need. If you have employer provided life insurance, for example, you can base any additional cover around this.
- The size of your family. Consider how many dependents you have and their ages. Younger children are likely to need more life insurance for financial support before they’re able to earn themselves.
- Future needs. Making contingency plans for your family’s future will give you the ultimate peace of mind. Considering what they might need and ensuring you have adequate cover in place may help them in various ways, including them being able to follow the educational path of their choice.
