23 Apr 2024

A Guide To Calculating The Amount Of Life Insurance Cover You Need

Calculating the how much life cover you need to settle all of your debts is quite simple. Whatever sum you decide you need for the settlement of debt is the amount of cover you require.

What is not so simple is how to work out just what they’ll all need to maintain their current life style. The step by step guide below, which follows, may help you in making your assessment.

A simpler option could be family income benefit. Simply tell us your annual net income and term you require ( normally until your youngest child is 18 ) and see much replacing your whole annual income if you died would cost.

How much cash should be readily available?

Firstly you’ll need to work out just how much cash will be needed to deal with immediate requirements following your death.

There will be funeral expenses to pay for and any debts you may have left, such as personal loans, store and credit cards. Ideally you should leave enough easily accessible money to cover expenses and bills for two months.

Having worked out this sum, deduct any emergency savings that you may have saved to tide the family over this difficult time.

What sort of income will your family require?

Assuming you have an income, you will have to calculate how much cover is required to replace that income in the event of your death.

What is your take home pay after the deduction of national insurance and tax. Will there will be additional expenses for your family to fund  following your death, such as childcare? Add your take home pay to the additional expenses and this is the income required by your family.

When you have done this,  you need to find out whether your family will be qualified for any state or bereavement benefits after your death. The Directgov or Department for Work and Pensions websites will provide you with this information. These extra benefits, along with any other income your family may receive, are deducted from the required income amount arrived at above.

Any expenses, which are no longer payable once you have died, are then deducted. For example, it’s likely that your mortgage will be paid off by an insurance policy on your death, and in this case the monthly repayments no longer apply and should be deducted.  You must also delete any expenses, which no longer apply after you have died, such as  the cost of traveling to work. The final amount is an approximate guide to how much your family will require each month, should you die.

How long do you think your family will require cover?

Multiply the final amount calculated above by 12 (12 months in a year) to determine the annual figure. Assess the number of years your family will require cover and multiply it by the annual figure. The length of cover required is likely to be until your children are independent or the retirement of your partner.

The base amount is now calculated. Add the two calculate amounts together to get the base amount.

Think about any life cover you have already arranged.

Any existing life cover, which would be paid by your employer in the event of your death, or any other insurance policy, which is not covering anything specific, such as  a mortgage, should now be deducted. You have now arrived at the amount of life cover required to protect your family on your death. Something that you need to take account is that you also have mortgage protection.

If the amount of money you’d need to pay out sounds completely impossible, there’s no need to panic and decide to do nothing. You should not overstretch yourself, but simply insure yourself as closely as possible to the target figure. Some life cover is better than none at all.

It’s your family that matters, after all.

Do you want Advice on Life Insurance ?

After you have compared the life insurance information on Go Direct if you would like life insurance advice, please complete our life insurance enquiry form and we will contact you to discuses your insurance needs. Alternatively you can obtain discounted family life cover quote with out instant quote system.

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