Integra News How much life insurance do I need?

How much life insurance do I need?

At Integra, we know our customers are asking themselves this question. Whilst there may not be a silver bullet answer to give, I think we can apply some simple logic to help prioritise needs.

Of course, everyone is different, has different circumstances and so it makes sense that their needs will also be different.

In truth, the conversation needs to be bigger than just life insurance. After all, whilst death of a spouse or partner is a hugely impactful event, compared to the risk of them becoming ill for a prolonged period it's considerably less important. That's not to discourage anyone from taking life cover, however it is encouragement to step back and consider the bigger picture.

Back to how much life cover?

1 - Protect Debt

Ok, so keeping this on topic perhaps we can start buy thinking about any debts. The most obvious is your mortgage however, there may be other debts you would want to see repaid on death. Don't forget to consider whether cover should be level or decreasing. A repayment or capital and interest mortgage can be protected most efficiently with a decreasing term policy whereas an interest only mortgage would need to be protected with level cover.

A common route I see customers pursue is where they decide to have level cover for a decreasing debt. This isn't forbidden however, it suggests there is a second objective beyond repayment of the mortgage....

2 - Other Objectives

If that is the case it is worth considering if there is a better way to achieve that objective? This might be to help a single parent raise children to a financially independent age, ensure school fees could still be afforded should a parent pass away or to effectively guarantee child maintenance would be received even if the paying parent were to die. You might want to consider a little known and poorly understood policy called Family Income Benefit (but that's another article altogether!) Bottom line is there may be reasons to have more cover.

3 - I already have cover from my employer

Good point as most employers will offer you a "death in service" benefit. This is usually a multiple of your basic salary. I have to say my feelings over this cover are mixed. Whilst it is undoubtedly generous of your employer to provide such a benefit, I'm not a fan if it leads to the opinion that therefore an individual's protection needs have been taken care of. It's possible however, it is unlikely.

Consider cover provided by your employer, whether for free or as part of a flexible benefits package as "luxury cover" i.e. cover you could live without. Why, because you may not get the benefit. You might leave that employer, be made redundant, be fired or they might simply stop offering it. Whilst a death in service benefit might be contractual, other benefits may not be and so you should be careful about being dependent on them. If the cover is important, better that you own it and therefore nobody can take it away from you!

Another moment to shout up for Family Income Benefit plans here as it would allow a cost-effective way of providing a family with replacement lost income should a spouse/partner/parent pass away. Lump sum cover might be considered a rather clumsy way of proving a death benefit for this purpose. You could leave a tax-free income until a child reaches the age of 18, 21 or 25 so the loss of your income to the household is cushioned.

4 - Funeral costs

There are plans specifically designed for covering these. Their suitability will depend on whether it is important that a guaranteed pay-out is available. The life insurance schemes we most commonly seen are term plans that pay a benefit if death occurs in the term however, if you outlive the term then the policy terminates. A whole of life plan is guaranteed to pay out, by definition. By comparison to term cover, these plans will be more expensive as they will definitely pay a benefit. There's no such thing as a free lunch.

5 - Over 50's

You'll see these plans advertised heavily on TV. They key benefit is that there is no medical underwriting. If you are over 50, they guarantee to accept you. As you can imagine, the premiums reflect this, and you will pay more as a healthy applicant than if you applied for a plan that was medically underwritten. If, however, you have a less favourable medical history, these could be just the job.

6 - Whole of Life

We have touched on this already. These plans are often used as part of "estate planning". This is where the anticipated size of someone's estate exceeds the inheritance tax free allowance or nil rate band rules. Given the tax charge can be punitive, this can be a crucial part of planning out your finances. Otherwise, your beneficiaries might be left with a significant burden.

In Summary

Call me a politician for not answering the question! Ultimately, as an advisor, our job is to understand you and what your circumstances are and then help you to make an informed choice. The right level of cover will depend on many factors including your budget.

The best place to start is to talk and we'd be delighted to start that process with you.

Contact us via our email:

Or our telephone: 0117 251 0083