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How do I work out how much life insurance I need?

By Vicki Coleman

If you asked most people to put a value on their life, they’d probably underestimate it. Perhaps it’s just British self-deprecation.

But, essentially, putting a value on your life – at least from a financial perspective – is what you have to do when you take out life insurance. So, it’s hardly a surprise that Brits tend to fall short of the amount of cover they need.

However, if you don’t take out adequate cover, you could leave your loved ones with a crippling financial deficit in the event of your death.

When taking out cover, then, it’s important that you crunch the numbers before settling on your agreed payout. Where do you start?

1.       Work out if you need life insurance

First things first, it’s better to have some cover than none at all.

As per the latest research from October 2022[1], nearly two-thirds (63%) of Brits do not hold a life insurance policy. Only 35% of people have life insurance cover despite six in 10 households agreeing it would benefit their family.

Now, it’s important to note that life insurance isn’t an essential purchase for all households. If you’re single and don’t have any dependents, you probably don’t need to think about insuring your life.

That’s not to say your life is worth any less, of course; just that nobody is financially dependent on your income other than yourself.

Similarly, if you’re on a low income, the cost of life insurance premiums may outweigh the benefits.

Life insurance cover becomes valuable protection when you have:

• dependents such as children

• a partner who relies on your income, or

• a family living in a house with a mortgage

With adequate life insurance in place, in the event of your death, the people nearest and dearest to you will receive financial support in your absence, either as a lump sum or as regular payments.

2.       Start with your outstanding mortgage

If your death would leave your loved ones to severely suffer financially, you should probably take out some life cover.

Most people start to consider taking out a life insurance policy when they either take out a mortgage on a property or have children.

A mortgage is given based on what is deemed affordable for the applicants. For most families, mortgage repayments would become unaffordable should one of the main breadwinners (you or your partner) die.

Life insurance can guarantee that your family is able to retain the property in these tragic circumstances. But the lump sum life insurance payout will need to be at least enough to cover the outstanding mortgage debt.

Mortgage life insurance policies are designed to do exactly this. Most people with repayment mortgages go for a decreasing life policy, which means the size of the payout decreases as your mortgage debt gets smaller over time.

It’s cost effective, providing the bare minimum of cover required to ensure your dependents can remain in the family home.

3.       Think about other loans and debts

Excluding mortgages, almost two-thirds (63%) of people between 16-64 living in the UK have some type of personal debt, data suggests[2].

A third of those have a personal debt anywhere between £2k-£10k, which works out as nine million people across the UK. And nearly a fifth admitted their debt was over £10k – that’s 4.8 million people sitting burdened with this high level of debt.

This might make you feel a little better about any outstanding personal debt you have – but it should also make you think about what will happen to the money you owe when you die.

If you have any joint loans, joint agreements, or have asked someone to be a loan guarantee, the debt will live on and need to be paid back. So, when taking out life cover, factor in any personal debt.

4.       Factor in your children’s expenses

If you have children, you’ll not need to be told that they’re expensive. Child Poverty Action Group (CAPG) recently ran a report[3] to find the average total of having children. They found that up to the age of 18, the cost of raising a child can be as much as a staggering £185,000.

Now, you might not have thought about your kids in monetary terms before. But for the purpose of taking out life cover, you sort of have to.

As well as factoring in the obvious – i.e., their education and how much it might cost to put them through school, higher education, and even further education – think about all the other expenses that make a child’s life complete; family holidays and such like.

Of course, you can’t cover every penny of their upbringing with life insurance – but you can make life a whole lot easier for your partner by providing some kind of financial support when you’re no longer around.

5.       Decide how you want to pay for your funeral

If you’re under the age of 50, you might not have given much (any) thought to your funeral. Even if you’re over 50, you might not have either!

If you were to die unexpectedly and without time to take out a funeral plan, your family would have to find the money. So, you have two options: put a funeral plan in place or ensure your life insurance policy payout would cover it.

Get some quotes today

One of the main reasons that people don’t hold life insurance is that they believe policies are too expensive. But life cover is becoming increasingly affordable, largely thanks to comparison sites like QuoteShare (we can’t take full credit).

At QuoteSearch, we’re happy to get as many quotes that you need until you find cover that matches your budget and requirements. We don’t have any favourite suppliers – the quotes that you see are comprehensive and competitive.

So, don’t be shy in requesting quotes for different types of cover – that’s what our experts are paid to do!

To compare your free life insurance quotes from leading providers, click here.


[1] https://www.moneymarketing.co.uk/news/majority-of-brits-do-not-hold-life-insurance-policy-study-finds/

[2] https://www.creditfix.co.uk/blog/over-half-of-uk-adults-head-into-2020-with-personal-debt-up-to-100000/

[3] https://www.compassfostering.com/raise-a-child-cost-uk/