05th August 2019

How much life cover do I need?

How much life cover do I need is a very valid and important question many people ask us as advisors. Most people we speak to our unsure on how much cover they need good, if you have a mortgage first of all then you will simply need life cover to cover the outstanding debt. If you have children you will need a lump sum for your partner to continue to bring up the children what that lump sum is Differs massively depending on the quality of life your children have if they go to private school and the general cost of bringing up that child or children. We use a guide of £10,000 per child per year As a minimum for example if you have one child who is five years old and you would expect the child to be working by age 21 we would recommend £160,000 as a lump sum payout as a minimum. This would effectively cover £10,000 per year for the next 16 years although you may die 10 years into the policy therefore you would have ample amount this is just a guide that we as advisors use and recommend to our clients. Some people may say it cost a lot more than £10,000 per year to bring up a child especially if they go to private school or they have a lot of after-school activities or for certain children who live more active or extravagant lifestyles. We as advisors will always have this conversation with our clients to come up with an accurate appropriate and suitable figure for the life insurance pay out. Simply going online and picking a lump-sum amount a lot of the time isn’t suitable and is the has no rationale behind it this is one of the main benefits of using an advisor he will talk you through your situation and be able to advise you accordingly with an appropriate pay out.

Another thing you have to consider when thinking about the life cover payout is any inheritance tax you your estate shall pay upon your death the current threshold in 2019 is 400,000 so that means If your estate is worth more than 400,000 upon death there will be 40% inheritance tax on anything over the £400,000 threshold this threshold is due to change and increase in the future however in 2019 this is where it is. So if for example, your total estate is worth £500,000 upon death you would be taxed 40% on the hundred thousand pounds over the £400,000 threshold equals £40,000

You also may have to consider any loans that you have as if you were today loans will be passed to the estate things like personal loans call loans credit card debts and mortgages whether that’s a residential mortgage or a buy to let mortgage these debts will still need to be considered when calculating the life cover P out. As I’m sure most people will agree you wouldn’t want to pass debt to a family member upon your death.