As I've mentioned time and time again Life Insurance is VITAL, but how much do you really need?
There are many rules of thumbs to follow and different views on this and I’ll probably get some people disagreeing with me, but here’s my take on it.
First of all we need to look at any debts you’ve got, mortgage, loans, credit cards. Etc.
Would you want all that clearing or would you expect your wife to pay it if you died?
Secondly, what will your spouse do if you died? Would they go home? Would they need to buy a new house? Or would they live in the property you’ve owned for the past 10 years? Or was that a small Bachelor pad you owned which now won’t fit your growing family in it? And what about the area? Is it close to a good school? Is it close to family? Because they’ll need them now more than ever because you’re dead. OK. So we’ve worked out you need a lump sum to buy a new house.
Thirdly, we have to calculate what income your family would need. Minus any investments or income they currently have. For example, let's say your partner needs £4,000 a month to raise your children and live off back home. But you’ve got a rental property giving you £1,000/month rent. So you’ve got a shortfall of £3,000/month. Which is £36,000 a year. On this calculation we would suggest you need £720,000 or 20x income. This way if your wife invested the £720,000 and it grew at 5% /year this would give her the income she needs and the money wouldn’t run out.
And lastly, if you want to pay for your children's education, whether that be private schooling or University, this also needs to be factored in.
So add up these figures and that is the amount of Life Insurance that your family needs.
BUT, I also recognise, it needs to be affordable and this is where you have to look at how important your family financial future is to you and decide how much money you’re willing to invest in that. The best way to do this is to work with a qualified Life Insurance specialist who will help you come to a happy middle ground if you can’t afford to fully protect your family.
I hope this helped and if anyone has any questions or feedback or would like to speak to me please feel free to drop a comment or send me a private message.
Thanks for reading,
Comments