Life insurance: how much cover do you need?

You can’t put a price on life, but you can come up with a figure that will help your loved ones cope financially if you pass away unexpectedly.

When you’re busy living, no one wants to think about dying or life insurance. But helping your family and dependents avoid financial worries should the unthinkable happen could make it a lot easier for them to get through a very difficult time.

So, how much cover do you need? We’ve put together the factors to consider so you can work out the appropriate figure for you.

Finding your magic number

To calculate the right amount of cover, you need to add up your outstanding debt plus any ongoing expenses.

If you pass away early, it’s likely you’ll leave behind some debt. Have you paid off your mortgage? What about finance on your car? Maybe you have credit cards or loans?

On top of these payments, there are ongoing costs for your loved ones to think about. They'll still need to cover the council tax and utility bills, as well as their own living expenses. If you have any children, then things like childcare costs and school fees will need paying too.

You also need to consider your partner’s financial position. Do they have an income? How much extra would they need to support them through to retirement or at least to give them time to secure additional income?

Once you have worked through these questions, you’ll be able to calculate the sort of lump sum your family would need to smooth things over financially if the worst were to happen.

Life insurance will pay out a pre-agreed lump sum on your death, if you pass away within the dates specified by your policy. Depending on the policy you buy, the amount can either be fixed for the term of the policy or decrease over time so the amount of cover reduces in line with your outstanding debt.

How much you pay each month will depend on how much cover you need and other factors like your lifestyle. For example, smokers will pay more because of the negative impact it has on their health and the increased likelihood they have of dying.

Staying up to date

Many people buy life insurance when they get their first mortgage. As life rolls on, you might move into a bigger house, have more children or take on debt to pay for a new venture. But have you updated your life insurance cover?

Maybe you have enjoyed professional success or received a financial windfall that has allowed you to pay off your debt and build up a nest egg. In this case, you might not need as much life insurance cover as your policy offers.

It’s possible to top up or reduce the cover you have, so it’s worth keeping an eye on your financial commitments to make sure they’re well-matched to your life insurance arrangements.

To see how Co-op Insurance could help, visit our life insurance page.