How much life insurance do you need? 5 questions to ask yourself

Category: News

No one likes to think about a time when they might no longer be around. But life insurance can offer valuable reassurance and comfort for you and your loved ones.

Life insurance pays out either a lump sum or regular payments on your death. The amount will depend on how much cover you’ve taken out.

According to research in MoneyAge, the death of the family breadwinner could cost their family £190,000 over 10 years, yet only 30 to 35% of UK adults have life insurance.

Deciding how much life insurance you need can be tricky. You probably don’t want to overpay on premiums, but you’ll want to ensure that you leave your loved ones with enough financial support.

So, you could consider asking yourself the following five questions to help you work out how much cover is right for you.

1. What do you need life insurance to do?

Understanding your reasons for taking out life insurance can be a good place to start.

First, think about who you want to protect. This might be your spouse, children, employees, or someone else. The individual needs of your beneficiaries could affect the level of cover you decide to take out.

Then, think about how you want your insurance to pay out. Would your beneficiaries find a lump sum or an ongoing income more helpful?

If you’re the main breadwinner and you have a young family, ongoing financial support may be more useful. Or you might prefer to leave a lump sum to allow your surviving partner to pay off the mortgage and remain in the family home. 

2. How long should your life insurance last?

You might want your cover to last until your youngest child reaches adulthood or you may need it to last your whole life.

You can choose from term life insurance that will last for a fixed period, or whole-of-life insurance that will provide cover for the rest of your life.

Term life insurance

Term life insurance is typically the more affordable option and may be a good choice if you want to cover a specific, time-limited concern, such as a mortgage. However, this type of cover has no cash value so when the term ends, there will be no payout.

Various types of term life insurance provide different types of cover:

  • Level term – The sum insured and your monthly premiums are fixed for the full term.
  • Decreasing term – Your premiums are fixed but the level of cover will decrease over time. 
  • Increasing term – Cover and premiums increase over time, usually in line with inflation.
  • Family income benefit – Your beneficiaries will receive a monthly payment from the time a claim is made to the end of the original insurance term.

Whole-of-life insurance

Whole-of-life insurance will last as long as you keep making premium payments.

It’s usually more expensive than term life insurance and your provider may charge a penalty fee if you cancel. Also, any outstanding loans could reduce the death benefit your loved ones receive. 

However, you can usually lock your premiums in for life, which could provide invaluable security and peace of mind. 

3. What debts do you have?

Reviewing your existing debts and other financial commitments could help you align your life insurance needs with your broader financial goals.

Once you’ve identified what you need your cover to do, you can balance this with other short- and long-term financial commitments.

For example, if you have a £500,000 capital repayment mortgage with a 25-year term, you could take out life cover that ensures your family could pay off the entire sum if you were to pass away.

This could also influence your decision as to how long you need the cover to last. Furthermore, as you’ll be paying off the sum and making it smaller over time, this could inform whether you choose a fixed amount or decreasing term cover.

A financial planner can help you understand what level of cover will provide your loved ones with the support they need.

4. Do you already have life insurance?

Some employers offer life insurance as part of their employee benefits package. Or, you might have previously taken out insurance that no longer meets your needs.

Before investing in life insurance, it’s worth checking if you’re already entitled to any cover and reviewing how well this meets your current needs.

If you’re fortunate enough to have protection from your employer for example, you might not need additional insurance, or you may be able to reduce the level of cover you take out.

5. What investments and savings do you have?

If you have built up a considerable savings pot or a strong investment portfolio, these could provide valuable financial support to your loved ones after your death. 

So, your investments and savings could affect how much life insurance you need or if you need it at all.

A financial planner can help you review your life insurance needs and align these with your long-term financial goals.

Get in touch

If you’d like help in reviewing your life insurance needs, please contact us by email at or call 020 8941 9779 to see how we can help you.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning or tax planning.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.