Amount of Cover Required
It is important to consider the amount of cover that you need before purchasing a particular life insurance policy. If you do not feel that you need to provide your survivors with a lot of money in the event of your death, you should be able to negotiate inexpensive monthly premiums. However, remember that these lower premiums will offer your dependents only a small amount of cover in the event of your death, which you may consider makes the insurance redundant.
General advice suggests that your sum assured, that is, the amount of money that your survivors will receive if you die, should have a value of approximately ten times your gross annual income. You may find the internet a useful way to research the sum assured that you should aim for: many insurers now offer online sum assured quotations based on how much your dependents will require and for how long, to sustain their standard of living after your death.
Another way to estimate the amount that your survivors will require is by making a list which compares the income that would be lost upon your death against the outgoings that would remain. Your total income includes any regular salary or wages, plus any irregular income for example from seasonal work. It may include pension benefits, state benefits, savings and investment returns and any annual bonuses. Consider also the outgoings that will no longer remain when you are dead, such as mortgage payments, living expenses such as food, travelling expenses, leisure expenditure, personal pension deductions and of course the life insurance premiums which would no longer need to be paid.
If you spend a relatively small amount of your income on yourself, and there are many outgoings that remain when you are dead, you should consider how much your survivors would need in order to cope when your income is no longer available. You should also estimate the cost of your funeral, which may vary depending on where you live. You will need to leave enough money to cover your debts, possible inheritance tax bills and the cost of replacing services that you provide for your family, such as free private health insurance from your employer. You may also wish to consider covering the income that they lose when they take holiday following your death, to arrange and attend your funeral.
Your savings and investments should also be taken into consideration. If they could provide financial assistance for your family you may wish to ensure that your survivors have easy access to these funds, perhaps placing them in a joint account so that they would be immediately available for use after your death.
