You have a mortgage, a family and you have heard about life insurance but do you really need it? How do you know how much life insurance you should really have and is it affordable. These are questions we at FDG Insurance get asked all the time and we are happy to provide you with some answers…
Do I really need life insurance?
Life insurance is one of those things that we know we should have (especially if we have a mortgage or a family dependent on you), but it still seems to be one of those insurances that people try and avoid. As with most insurances they are worth every cent when and if you need to use them, so why not assess your lifestyle and get informed.
How do I know how much to insure my life for?
There are many calculations and rules of thumb out there but the best way to calculate how much insurance you need is to speak to someone (like a financial advisor) who has experience and understands the different products and policies in the marketplace.
Failing this then you should assess what you want to provide for your spouse or other beneficiaries when you die. From that sum subtract all the other income sources like retirement accounts, pensions etc and that shortfall is the amount of life insurance you will need.
Another basic rule of thumb is that the death benefit on your policy should equal seven to 10 times the amount of your annual salary. But, like any rule of thumb, that isn’t always particularly accurate.
Other things to keep in mind when calculating your life insurance
- Rather than planning life insurance in isolation, consider the purchase as part of an overall financial plan. That plan should take into account future expenses, such as children, future growth of your income and your current assets and liabilities.
- Don’t skimp. Think about buying a little more coverage than you think you’ll need instead of buying less. Remember, your income likely will rise over the years, and so will your expenses. While you can’t anticipate exactly how much either of these will increase, a cushion helps make sure your spouse and kids can maintain their lifestyle.
- Consider buying multiple, smaller life insurance policies, instead of one larger policy, to vary your coverage as your needs ebb and flow.
- Don’t be afraid to have that conversation. Talk the numbers through with your spouse. How much money does your spouse think the family would need to carry on without you? Do your estimates make sense to them? For example, would your family need to replace your full income, or just a portion.
How much will it cost?
When we think about the cost of getting a life insurance policy, it’s all too easy to focus on the monthly cost of your policy but maybe we should also consider the cost of not having a life insurance policy.
Dependent on the policy you choose, the amount of money you insure your life for and the terms on your policy will depend on the total cost. But to be honest most policies are very affordable and can be added to your monthly outgoings.
The real question you should ask yourself is can my family afford not to have life insurance if I suddenly die. If the answer to this question is ‘No’ then please consider getting some advice today. Contact one of our advisers at FDG Insurance and we can help assess your needs.