Life Insurance: How much is too much (or too little)?
Good question, and there’s no one answer to it – it entirely depends on your needs.
But here’s why it’s important to find your answer. On one hand, not enough life cover could leave your loved ones in a financial pickle. On the other, if you’re over insured, you may be paying unnecessary premiums (yes, there can be too much of a good thing.)
So here are some tips to help you secure (and maintain) the right level of protection. Not too much, not too little: just right.
What are your priorities?
On the surface, life insurance is straight-forward: it’s designed to support your family financially if you’re no longer around. But when it comes to determining the appropriate level of cover –that’s when things get a little more complicated.
It all starts with taking a good look at your financial life – your family, your assets, and your debts. This will help you identify your priorities. For example:
· Do you have dependants (e.g., children, a partner, or ageing parents)? What would happen if you were no longer there to support them financially? Remember: life insurance is not for you, it’s for those you leave behind. Your family could use the payout in many ways: to take care of everyday costs or longer-term needs, like tertiary education, or even to build an emergency fund for peace of mind.
· Do you have a mortgage? How much is currently owed? With mortgages being a big financial commitment, it’s no wonder that owning a home is one of the key triggers for the need of life insurance. Taking out cover can help you protect your family’s home. Depending on the insured amount, your loved ones could use the payout to get mortgage-free or cover repayments for a set period.
· What about other personal debt? You may have high-interest debt to pay off, like credit cards or a personal loan. And while it might not amount to much, being able to repay it in one go can relieve a lot of financial stress on the family.
· What’s your current income? Think about the income that will be lost and what that’s paying for. Your family could tap into your life insurance benefit to create a replacement income stream for a period of time, while settling into a new routine.
· Will your family’s needs change? Keep in mind that your family’s financial needs may change over time. For example, how much replacement income would your loved ones need, once there are no mortgage repayments left to pay?
Need help weighing up all factors?
These are just some considerations to help get you thinking about the type (and amount) of insurance that’s right for you, and as you can see, there’s already a lot to think about. Once again, finding your ‘sweet spot’ depends on your circumstances.
Plus, choosing an appropriate level of life cover is not a ‘set and forget’ decision: it’s a delicate balancing act. Over time your situation will change, and so will your insurance needs. That’s why reviewing your policy regularly is crucial.
With so much to think about, consider seeking expert help. By asking you the right questions and knowing the market, an experienced insurance adviser can help you and your family secure appropriate protection for your needs. And as time goes by, they will be there with you, to ensure that your cover keeps up with your life.
Click here to find a financial adviser specialised in Personal Risk near you today.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.