A life insurance policy is a tool that can manage financial risks, which your family may face, should you pass away. It is not a necessary purchase for everyone. For example if you are single, have no debt or dependents and have enough money to cover your own funeral, you most likely do not require life insurance. Or you may have debts or dependents but have enough savings to repay any outstanding debts/provide dependents with an income in the event of your death.
However, if you are the primary provider in your family and there are people that rely upon your income for things such as paying the mortgage, buying food, paying school fees or other child related costs then having a life insurance policy definitely makes sense.
So, you’ve decided you want to plan for the future financial security of your family in the event that you pass away and you’ve deduced that a life insurance policy is one of the best ways to provide that security. The next question to cross your mind is “How much life insurance do I need?”
How much life insurance do I need?
As mentioned before, if there are people in your family that are dependent on your income, it is important that you have a financial plan in place to take care of them in the event of your death. Part of this plan should include life insurance. You may ask yourself, how much life insurance do I need? The answer to this question depends upon a few different factors:
- Outstanding debt – You may have a mortgage, loans, credit cards or other debts that are unpaid. You should ensure that the amount of insurance you purchase can cover these amounts.
- Funeral expenses – You would most likely want to cover these costs with your insurance policy; to avoid further stress upon your family.
- Income replacement – Do your family rely upon your income for day to day living costs? If so, you may wish to consider factoring an ongoing, regular income into your insurance policy. Working out this component requires careful consideration as you will need to ask yourself how much you want to provide and how long you want to provide the income for.
Lifestyle Solutions has a handy calculator to quickly estimate the figure that you might need life insurance cover for, check it out here.
Don’t forget to review your level of cover regularly
It is important that you review your life insurance cover regularly. Your needs may change due to various factors, see our blog to find out when you should review your life insurance. If you don’t review your life insurance on a regular basis, or after certain life changes, you may end up being underinsured. This can place unexpected stress on your family. There is also a possibility that, as time passes, you may become over insured (which can occur if you pay off debts over the duration of your policy). This could result in you paying out for cover that you no longer need.
Organising life insurance may seem like a daunting task. By considering the factors outlined above and determining how much cover you need, you can create a policy – and the peace of mind that comes with it – in no time at all. If you’d like to discuss options for life insurance to suit the needs of you and your family, or review your current policy please contact us for individually tailored lifestyle solutions.