What type of Life Insurance do I need?
Alternatively you can calculate the figure for yourself. To do this you need to work out how much money would be needed to pay off all your debts and how much income your dependents would require to continue the same lifestyle they currently enjoy. When you do this you will have to take into account the affect of inflation and the investment return you can budget on receiving.
If you only want a generalised guide then, for normal term insurance, you should consider insuring your life for between 5 and 10 times your current net salary after tax.
When you are using life insurance to cover the repayment of a mortgage (sometimes known as Mortgage Protection Insurance), the initial sum insured needs to equal the value currently out standing on your mortgage.
With Family Income Assurance you are insuring so that, in the event of your death, your family will be provided with a regular income, as opposed to a lump sum. Therefore, you need to work out how much income your family will need to live a comfortable life. So long as you have made arrangements to pay off the mortgage, you can ignore the cost of paying the mortgage. You should also take into account any lump sums that will be provided by any other insurances, pensions or investments you have.
For Mortgage Protection this decision is easy as the Term needs to equal the number of years outstanding on your mortgage.
In other circumstances, the Term is a personal decision but your age will be an important influence. You may wish to bear in mind that the minimum Term is usually 5 years and most people select a Term between 10 and 25 years, but the decision is yours.
Most Insurance Companies use the annual increase in the Government’s Retail Price Index as the basis for increasing your sum insured. However, please be aware that the indexation is an optional extra and will cost you more! Your monthly premiums will increase each year in line with the adjustment made by the Insurance Company.
Life policies that provide an increasing sum insured are called ‘Increasing Term Insurance’; policies that provide a constant sum insured is known as ‘Level Term Insurance’. Finally, please note that it would be beneficial to read the key points on how life insurance works. this helps to get a clearer understanding on how and why you should have life insurance set up as it is something very important and fundamental.