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Life cover: Are you properly protected?

Do you have any life cover? If you don’t know how your loved ones would cope financially if you were to pass away, life cover can provide essential peace of mind. However, research suggests that even those who have taken out a Life Insurance policy are underestimating their needs.

Consumer research conducted by MoneySuperMarket discovered Brits are underestimating the monetary value of their lives by as much as £140,000. It could mean that even with life cover in place, those left behind face a financial shortfall that means they struggle to meet commitments. Taking out Life Insurance is an important step if you have dependents, but so too is ensuring it covers everything needed.

What is Life Insurance?

Life Insurance is a type of insurance product that pays out a lump sum to dependents should you die during the term of the contract. The premium you pay for a Life Insurance policy will depend on a range of factors, including health, age and lifestyle.

It’s a product that’s designed to ensure the financial well-being of those you leave behind that may be reliant on you, such as your partner or children. In many cases, policyholders want their life cover to pay off the mortgage and essential bills in the months following their death. This can help loved ones through a difficult time financially without having to worry about debt or missing payments.

Who should have life cover?

All those with dependents should consider the benefits of taking out life cover.

This is particularly true for the main earner of a family. If your family would potentially be left struggling to pay bills without your income, Life Insurance can provide a safety net. A lump sum can help cover immediate financial concerns as your family come to terms with your death. It can provide long-term financial security too, for instance, if the mortgage is paid off.

It’s not just the breadwinner that should have life cover either. If your income provides support for your family, it’s worth considering how they’d cope without the additional money each month. Even if your family isn’t dependent on your income or you don’t work, you should also think about the value you provide. Stay-at-home parents, for example, eliminate the need to pay for costly childcare while the other partner is at work. Should they die, it can leave the family in financial difficulty once the potential costs are factored in.

How much Life Insurance do you need?

The MoneySuperMarket research revealed this is an area that many struggle to calculate.

The findings suggest almost half (49%) don’t know how much cover they’d need. Of those who had taken out a Life Insurance policy already, the average had underestimated their worth by £48,809. It could mean a significant shortfall should the worst happen, leaving grieving families struggling with money concerns, when a check to determine the amount needed could have avoided it.

There were some professions and industries were workers undervalued themselves to an even greater extent. The sectors were the difference between how much Life Insurance people believed they needed compared to the actual cover amount was:

  • Property (£138,000 difference)
  • Childcare (£97,000)
  • IT (£86,000)
  • Media (£80,000)
  • Education (£70,000)
  • Law (£55,000)

The figures produced for the research were based on averages, but the truth is how much cover you need is dependent on your personal situation.

To secure cover that accurately reflects your needs you must truly understand your wealth and the financial challenges your family may face. If you’ve already paid off your mortgage, you can probably afford to take out a policy with a lower than average amount. On the other hand, if you want to ensure your children’s educational costs will be covered through compulsory education and university, you may need a greater level of cover.

This is where financial planning and cashflow modelling can help assess your financial needs and how they may change in the future.

By considering what your family’s financial priorities would be if you passed away, we can help you see how different levels of cover would provide support in the short, medium, and long term. The loss of income can have a devastating impact on a family and leave them in a vulnerable position. This is particularly true when they’re grieving.

Our goal is to help our clients achieve peace of mind. Should the worst happen, with the right level of Life Insurance, you’ll know that your family is taken care of financially. We can factor in your family’s financial obligations and your other assets, gathering an accurate picture of the potential shortfall they would face and how this could be overcome.

If you’d like help understanding what an appropriate level of life cover for you would be, please contact us. We’ll work with you to calculate a figure the reflects your income, priorities and family’s circumstances.

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