How Much Life Insurance Cover Do I Need To Have?
It's important to know how much life insurance you are going to need. There are several things that you need to consider and you also need to anticipate what your demands are going to be in the future. Here we take a look at how to get the right cover for you.
The first steps
Before you even look at what life insurance is available, you should take note of what your personal circumstances are. This isn't just about you but also considering your family's needs along with any other beneficiaries that you intend to have.
After this, you also want to think about your monthly budget. You need to know exactly how much cover you can afford without overstretching yourself. Once you take all of these aspects into account then you'll have a much better idea of what you need.
Covering your liabilities
The biggest financial burden that your family will have once you pass away is your liabilities. These are amounts of money that you owe in its various forms.
The largest liability that most people have is their mortgage. Not only can this be a huge sum of money but also the monthly payments are often much higher than any other monthly bill. Without life insurance, many families are forced to sell their homes as it becomes unaffordable.
Even if you have a joint income, it's usually the case that the payments can't be made on a sole income. Having a comprehensive policy that can cover the remaining amount on the mortgage can be a huge relief and is often the largest proportion of the life insurance you need.
It could be that you already have a policy in place. Many mortgage lenders will try and have you sign up to life insurance from the outset but you're never under any obligation to take this. Often you'll get a better deal if you look elsewhere.
You need to check with your mortgage company what their policy is as you may have to take both capital and interest repayments into account along with their final settlement offer. A legitimate advisor will be able to go through this with you.
A dangerous myth is that your debts die with you when instead they come out of your estate. Life insurance can not only cover these debts but also leave them with money left over. This is especially important if you have any joint debts as these will become the sole liability of your partner.
You need to add all of these ups and this includes any types of debts that you have including loans, credit cards, tax or anything else that you may owe. With the right life insurance, you'll be able to clear all of these and make life a lot simpler for your family.
This is going to be one of the trickiest aspects to determine as you have to try and figure out how much your family will need after you're gone. This can be even more difficult if you're renting and therefore you can't remove the financial burden of that monthly payment.
Once you've gone, your family would have to go through an adaptation period and having a lump sum payment can give them the time and space they need. The money can help them work out how they can move forward without your income.
Taking care of dependents
If you have young dependents then you need to consider who they are going to be cared for if you pass away. If you play a large role in their childcare then you have to consider whether professional childcare would need to be paid for if you weren't there.
As well as childcare, you also need to think about education. Whether this is a private school or paying for their tuition fees, you want to ensure that they're not going to have to go through any monumental changes and they can continue their education as before.
How much life insurance do you need? Well, everyone is different. Also, not everyone has the luxury of being able to pay a high premium to cover everything you need. Sometimes you need to prioritize what needs to be paid off and often a mortgage will come near the top of that list.
If you're unsure then a life insurance advisor is going to be able to go through it with you to ensure that you're covered. You want to be able to put your family in the best situation possible after you're gone and that will determine the perfect amount of life insurance for you.
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