How much life cover do I really need?
There is no set answer to how much life cover one needs; every family is different.
Below is a guide to help you determine the most suitable cover for you. Considering your mortality is an uncomfortable but invaluable excersise.
If you are single with no dependants, you likely need very little life cover. How much would your family need for final expenses? Do you have any outstanding debts to cover, do you have anyone you want to leave a little nest egg to? Are you getting married or planning a family in the near future?
If you are married or have dependants, you need to consider how your loved ones will carry on without your income and your contribution to the family (household duties that you will no longer be there to help with). How much will they need to continue to meet their obligations, save for the future and still enjoy holidays/Christmas/social activities.
I recommend replacing your average monthly outgoings until your youngest dependant is 21-25 years old, (less any life cover you already have in place, substantial savings/inheritance)
For example:
With average monthly outgoings of €2,000 (exlcuding your mortgage, as it should be covered under a mortgage protection policy) and a youngest child of 5 years old, you might get a 16 year convertible term policy for €384,000.
Today, this costs just €34.05 per month based on standard health rates on a 38 year old nonsmoker.
Note, you can cancel your policy at any given time should your circumstances change, taking out a policy does not obligate you to the full term.
Do not overlook non-working partners, replacing their contrbution to the household is costly. Furthermore, consider the fact that the surviving partner will need time out of work to greive and adjust, possibly returning to work at a reduced capacity for an extended period of time. Using your outgoings (as opposed to income) as outlined above will give you a more accurate idea of need.
Once you have your life insurance ‘need’, decide what suits your budget.
Do not be discouraged if you “need” more cover than you can afford, your loved ones will be better off with some cover rather than no cover at all -I cannot emphasise this point enough. Scale back the cover to match your budget and update your policy as circumstances change.
Fortunately, most people are surprised by how much cover they can afford.
*Keep in mind, life insurance only protects your family if you pass away. Confirm what employer paid sick/disability benefit that you are entitled to, and if you are not covered, ring fence a portion of your life cover budget to serious illness and/or income protection.
Author: Rachel O’ Shea, Senior Consultant & Protection Manager
Queries on the above? Contact Rachel, roshea@olearylife.ie or 021-4521328