It seems like for most of us our disposable income is constantly being squeezed.
As a result, our regular outgoings, such as utility bills, TV subscriptions and food shopping need to be monitored and where possible savings made. But what about our life insurance cover?
As a parent, I appreciate how important life insurance is in order to protect the financial future of our loved ones. But how do we ensure our life insurance is as comprehensive and cost-effective as possible?
We asked the award-winning broker Reassured to help identify how much life insurance to take out and importantly how we could all save money on our monthly premiums!
Key personal factors
Firstly, let’s look at the key factors which determine how much life insurance cover parents need:
- How many children/dependants do you have?
- When will your children be financially independent?
- What is the size of your mortgage?
- Your lifestyle and expenditure
- What is your level of debt?
- Do you have cover through your employer?
Let’s look at the key points in more detail.
Cover your mortgage
This is a big one. For most a mortgage is the largest debt that we will ever incur, but a necessary evil if we are to become a homeowner.
Average mortgage balance in the UK is £121,687. (source: The Money Charity)
Obviously, it is vitally important not to burden your partner with unmanageable monthly mortgage repayments if you were no longer around.
You also don’t want to be forced to downsize, moving your children to a new home and potentially a new area at what would already be a very unsettling time.
So assuming you do not have mountains of savings, your policy should at least cover your mortgage debt.
Decreasing term cover, where the payout amount comes down inline with your mortgage balance, is an affordable way to protect your home.
Cover future family living costs
Have a think about your regular family outgoings:
- Children’s education
- Leisure activities
- Food and drink
- Car maintenance/fuel
- Holidays etc.
Ideally, your life insurance cover would allow your loved ones to maintain their current standard of living if you were no longer around.
Average cost of raising a child over 21 years is £231,713 (source: The Money Charity)
Unfortunately, the cost of living in the UK seems to rise each year, (rarely inline with our salaries). So it is a good idea to factor inflation into the level of cover secured to protect your families long-term needs.
Also, factor in the potential cost of sending your children to university. This obviously impacts the age at which your children are likely to be financially independent.
Cover through your employer?
If you enjoy some form of cover through your job you should factor this into your level of personal protection, (you may be able to make a decent saving).
Many employers now provide death in service, which can payout 3x your annual salary if you were to pass away whilst employed there.
However, remember that if you were to change jobs you are very unlikely to be able to take the cover with you.
Don’t forget to protect stay-at-home parents too
Stay-at-home parents, although not pulling in a tangible income, also contribute an enormous amount and require life cover.
Average cost of full-time childcare is £232.84 a week. (source: The Money Advice Service)
Think about how you would replace all the roles a stay-at-home parent fulfils; chef, taxi driver, childminder, personal shopper, school tutor etc.
Taking out joint life insurance (instead of 2 separate policies) is a more cost-effective option, to cover you and your partner. However joint policies only provide 1 payout, usually on the first death. 2 single policies, although approximately 20% more expensive, offer 2 payouts and potentially double the cover.
What if your personal circumstances change
As parents, we know that circumstances can change. You might have more children, move to a larger property (with a bigger mortgage) or change jobs.
Ideally, our life insurance would adapt to meet our changing circumstances. This can be arranged by exercising a special events clause (ensuring you are not exposed). However, despite not requiring additional underwriting your monthly premium would increase if more cover was required.
What can you afford?
In the perfect world, we would take out ample life insurance to cover our mortgage, provide an inheritance, clear any outstanding debts, fund future living costs, the childrenís university years, funeral expenses etc.
But as mentioned earlier, the greater the level of cover and the longer the policy term, the higher the monthly premium.
So, it is about finding that sweet spot between what can you afford and what you NEED to cover? Obviously, this varies for each and every family.
Life insurance in most cases should cover larger debts, like your mortgage and long-term family living costs. It is a good idea to consider rising living costs to future-proof a payouts ‘real term’ value.
It is a good idea to consider the affects of inflation and rising cost of living to future-proof a payouts value.
Also, do not take out more coverage than you need and pay unnecessarily high premiums. The same goes for the term length, donít make it unnecessarily long. Generally, it is a good idea to mirror your mortgage term or have cover last until the children have left home.
Lastly, in order to secure the cheapest monthly premiums compare multiple quotes, as prices can vary wildly. You can do this yourself by researching different insurers online or using comparison websites.
Alternatively, you could employ the services of an FCA registered broker like Reassured. We can do the hard work for you, saving time and money. Whats more we search the entire market, unlike most comparison sites.
(And the best bit, our service is completely free to use).
Summary of how to save on life insurance:
- Don’t take out more cover than you need
- Don’t take out an overly long policy term
- Take out cover when you are young and lock in low premiums
- Live a healthy lifestyle (smoking, weight and alcohol consumption are taken into account by insurers)
- Consider joint life insurance cover
- Factor in any cover protection you get from your employer
- Compare multiple quotes as prices vary.