Do you need Life Insurance?

If you are single and don’t have any children, or anyone that depends on you financially then you don’t really need life insurance. You would be much better off using this money to buy an insurance policy that would give you an income if you were unable to work because of illness, for example, income protection insurance.

However if you have someone that depends on you financially, like a partner or children, then you need some life insurance to provide for them if you weren’t around to provide for them financially. However you will need to calculate how much life insurance you need. Use our life insurance calculator, below.

How much life cover do I need?

In order to work out how much life cover you need you have to do some calculations. First you will need to leave enough money to pay off your debts, like your mortgage and any credit cards or loans and pay for your funeral. Your partner or children will also need money to live on each month, for example, until the children are financially independent, this could be when they are in their 20’s if they go to university.

The amount you need to leave after paying your mortgage and debts can be calculated as follows:

Your monthly take home pay after tax and National Insurance,

plus any new costs like childcare

minus any benefits your family might be entitled and any costs they won’t have after you die, for example, mortgage payments if this is paid off.

Once you have calculated the monthly figure it should be multiplied by 12 to give you an annual amount and then multiplied for every year your family will need financial support.

For example,

Mortgage £100,000

Cost of funeral and to pay off credit card £10,000

£2,000 per month for 15 years (£2,000 x 12 months x 15 years) Total = £470,000

Writing in trust

Money paid out from a life insurance policy when you die will form part of your estate. As a result your dependants might have to pay inheritance tax on it if your estate is over the tax-free limit. You can get round this by writing your life insurance policy in trust. Putting life insurance in trust means that it is excluded from your estate. As a result your dependants won’t have to pay inheritance tax on it. Putting life insurance in trust also means that the policy will pay out without your dependants having to wait for probate to be granted.

You can normally write your life insurance policy in trust without paying extra. All you need to do is ask your life insurance provider for a trust form. You need to calculate the value of your estate and if your family will have to pay inheritance tax on it.

How to buy Life Insurance

Anyone who sells life insurance is regulated by the Financial Services Authority. It’s important that you compare policies and choose one that is suitable for your personal circumstances. Companies selling life insurance have to give you certain information to help you decide.

Buying with advice

If you buy life insurance with advice the company recommends the right policy for you based on your specific individual circumstances. If you are given the wrong advice and the policy isn’t suitable you can complain and may be entitled to compensation.

Buying with information only

If you buy life insurance on an information only basis it’s up to you to decide if the policy is suitable. Although advisers selling insurance without advice are regulated by the FSA and have to give you clear information and follow their rules, if you buy the wrong policy it could be harder to make a complaint.

How to Find the right Life Insurance Policy

Life insurance is complicated and it's essential that you choose the right policy. We specialise in life insurance and will search the market, help you find the right cover at the best price available and calculate how much life cover you need. Quotes for life insurance are free and you are under no obligation.