Entrepreneur Resources Your source for small business information
Are you aware of the amount of life insurance cover that is appropriate for your needs? Here, we assess some of the factors that are worthy of consideration prior to making a commitment to buying. This is especially important for small business owners who won’t automatically have access to plans like if they were working for a large corporation. For specifics on £100,000 (~$142,500 USD) worth of life cover, visit Insurance Hero.
The amount of life insurance cover, which is also referred to as life assurance, that you need depends upon your circumstances as well as the type of protection you wish to avail.
As an example, you might prefer to protect your mortgage, provide a lump sum so that your loved ones can maintain a reasonable living standard, or to cover any debts.
Prior to making any comparisons of life insurance, it is wise to keep in mind that the coverage you will need is dependent on your personal circumstances. You may have a family, or it might come down to the amount you can afford to pay towards monthly life insurance premiums.
In essence, there is never a one-size-fits-all scenario, and the amount of coverage, as well as the length of time that it lasts, varies from one person to the next. Nevertheless, it is possible to make assessments of the key components that should be considered.
Covering your mortgage
It’s possible that your mortgage repayment is your largest single outgoing. If you are the main income earner within your family, it’s unlikely that you’d want a mortgage to become the responsibility of your loved ones in the event of your death.
As such, a mortgage life insurance policy may afford the right form of protection that you require.
The majority of mortgage lenders will attempt to sell life cover to you when you invest in a mortgage. You are, however, under no obligation to take this, and it is good policy to shop around for a better deal.
When you are working out the amount of cover you require, do check to see that you have sufficient cover for both the capital and the interest repayments.
Covering other loans
And the same applies to other loans that you may have, that are not under the coverage of any other forms of insurance. Again, if you do have sizable debts, you’d likely wish to ensure that your loved ones are not left to deal with them in the event of your demise.
There are many life insurance policies that can afford coverage for these, and it’s easy to get further information that will help you to decide which is optimal for your needs.
Making allowances for childcare expenses
You might have a young family, and in which case, if you die, it’s not merely your role as the main breadwinner that is going to be missed.
With this in mind, you may wish to consider those unpaid responsibilities that you perform either as a parent or guardian. Additional or alternative childcare arrangements may be necessary if the worst were to happen.
The amount of life cover that will be needed and for how long will depend on the age of your children and how many you have.
Educational expenses
It’s always good to have the peace of mind that your children are able to continue with their schooling or can finish their university education irrespective of any extenuating life circumstances. After all, the cost of education can soon become a large financial burden.
Schooling fees as well as expenses for university can therefore be a part of your provisions list.
Income replacement
Should you no longer be around as the principal family earner, how much money are your dependents likely to need in order to maintain their own lifestyles?
This is a very difficult calculation to make, given that it involves your current salary and then trying to predict the future financial requirements of your family.
Critical illness
In a scenario where a serious or critical illness occurs, you’d need to think about the amount of time you might require off work for which to recuperate, and any knock-on additional financial pressures that these circumstances would bring.
You might also wish to make further provision for medical treatment of a private nature.
What it comes down to
What it all comes down to is that the amount of life insurance cover that you need depends on your particular circumstances. It’s vital to have a solid concept as to the amount of cover you will be in need of prior to making an investment in a policy.
