How Long Should I Get Life Insurance For?
The majority of life insurance policies run on an average of 10 or 25 years; however, you can specify how long you wish it to be. This is down to your personal circumstances.
Overall, the longer you are insured, the higher your premiums will be and the earlier you insure yourself, the cheaper it will be.
If anything were to happen to you, you’d want your loved ones taken care of financially. But before considering how long you should take out a policy, you may want to contemplate what options are available to suit your specific needs.
What types of life insurance are there?
In a nutshell, life insurance is a policy taken out to insure your life. This is in the event of your death, so your finances are left in order. If something were to happen to you, your policy would payout. There are a number of policies available, which can help with thinking about what one is the best for your situation and how long you should make your policy. Here are a few of the main types:
Whole of Life Cover
Rather than be insured for a specific timeframe, whole life is for the entirety of your life. You will continue to pay premiums right up until your eventual death.
As a pay-out is certain, this insurance is quite expensive in comparison to other policies. It can be a fairly complex set-up as well, as some of your premiums will go into buying the life cover whilst others can go towards investment funds. This means that after your death, what is left to your dependents may vary, depending on what terms you negotiated with investment funding.
Although this can be appropriate if you want to make sure mortgage payments will be met, which usually run for a 25-year basis themselves.
Level Term Insurance
This type of insurance is aimed at paying out to your dependents if you die in a specific time period. Most people aim to do this over their mortgage period of 25 years. This is to ensure that if a death occurs, any debts or payments will be covered in this time. This policy is also ideal if you have children still living at home or in full-time education.
You can make the decision at what age you feel your children are still dependent on you financially, and therefore able to pick how long this policy runs for.
Because this policy is short term, your premiums will be lower in comparison to whole of life. In addition to this, the earlier you take this policy out, the cheaper it will be.
Decreasing Term Insurance
This means that the end pay-out will ultimately decrease throughout the policy time. This is usually due to debts and mortgage payments. This is an ideal way of ensuring your mortgage will be paid in the event of your death.
An example of this is taking a 25-year mortgage along with your life insurance, however, after so many years your payments would have decreased therefore you are left being over-insured if anything. This means your mortgage should be completely covered in the event of your death, and it is cheaper than level term insurance.
How much cover do I need?
You may be asking yourself whether you even need life insurance and if so, what cover do you need. If something were to happen to you tomorrow, would anyone around you take the brunt of your current finances?
It’s inevitable that we go through life with a bit of debt here and there, whether it was buying that new kitchen or putting your children through education. But if something happens to you, you want to make sure these are taken care of.
The amount of cover you need depends on your current financial situation. If you still have children under 18 or living at home, you want to make sure they will be taken care of. It’s important to note what age you specifically find them to be dependent on you. They may be over the age of 18, but still living at home and in full-time education.
Another question to ask yourself is what debts you have in place. Are you paying off a loan or credit card at current? The best way to predict all this is by speaking to an advisor and using the calculation method of how much money you will need and how long for.
Calculating your Life Insurance
This doesn’t have to be a daunting task as you literally just need to take all aspects of your financial life into consideration. First of all, is to work out how much of your mortgage is left outstanding. Let’s use £150,000 as an example.
Secondly, add up any debts you are currently paying such as credit cards, loans, overdrafts etc. Say this sum comes to £10,000.
Next is to calculate what your dependents may need after you’re gone. Be realistic here. For example, your partner and children may need a further £50,000 for the next 10 years after you die. This is a sum of £500,000.
The key is to plan in advance. By starting your policy younger, your monthly spending is much smaller. It is always advised to speak to a professional regarding your financial situation.
At St Barts Finance you can be given the best guidance to ensure you know what type of policy you are taking out and how long you will need it for. Your needs will be specifically tailored so your policy reflects your requirements.
Related questions about Life Insurance
Can I insure against being critically ill?
Critical illness insurance can be taken out at the same time as life insurance. This is to ensure that if you fall ill, you and your family are covered. Critical illness insurance will pay out a tax-free lump sum if you are diagnosed with the
- Heart disease
- Incapacitated due to an accident
- Any other seriously defined illness
You are able to choose when you wish the money to be released, in order to ensure your mortgage is covered or debts are paid etc.
Cover is subject to the definitions of your chosen policy.