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Life Insurance: how much is too much… or not enough?

As you’ll know, Life Insurance is designed to pay a lump sum on the death of the insured person.
The purpose, of course, is to allow your loved ones to maintain their lifestyle once you’re no longer there to support them. So how much would your family need? Here are some key tips to get you started.

Consider your priority needs

When estimating what level of cover you need, it’s important to keep your financial circumstances front and centre. For example:

  • Do you have any debt? Usually paying off debt is the priority, as this can relieve a lot of financial stress on the family.
  • Would your family be able to cover funeral costs? Remember: funerals can be a costly business, and not having enough funds can add to an already stressful time.
  • Do you have young kids? If the remaining partner intends to keep working, you may need someone to help clean the house or care for your kids, while the family settles into a new routine.

Think about your income

If you’re working out how much cover you need, think about the income that will be lost and what that is paying for. For example, if you have a mortgage for $400,000 and earn $60,000 per year… is a million-dollar Life Insurance policy too much? And how much replacement income would your family actually need, once there are no mortgage repayments left to pay?

Conversely, needing cover to pay off an $800,000 mortgage may mean you need a higher level of total cover – especially if you’re including additional costs for everyday expenses, schooling, and home assistance.

But what if the premium costs get too high? If they do, you can consider including an amount to cover mortgage payments for a certain period of time (say until your youngest child is twenty), rather than paying off the full mortgage.

Weighing up all factors

When running the numbers, think about different scenarios, without automatically assuming that the surviving spouse will either continue working or will return to work. The grieving process is an unknown, and they may need more time off than you have planned, or may not want to return to the same work.

In the end, to avoid being over or under-insured, your decision needs to weigh up the premium cost versus what you really need. As always, don’t forget we’re in your corner and can help you find the right level of coverage for your family’s needs.

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