Life insurance is a critical component of financial planning, a way of providing security for loved ones in the event of the policyholder’s death. However, not all policies are created equal. In fact, they can vary significantly in terms of length and value. Understanding the factors that influence these variations is crucial for making informed decisions about your life insurance cover.

How much life insurance do I need?

Determining the appropriate amount of life insurance cover can be challenging. To help you understand your life insurance needs, we’ve outlined the key factors that influence the total cover required.

Number of Dependents: One of the primary factors influencing the length and value of a life insurance policy is the number of dependents the policyholder has. Dependents, such as children or a spouse who relies on the policyholder’s income, may require financial support for an extended period. In such cases, a longer-term policy with a higher cover amount may be necessary to ensure that dependents are adequately provided for in the event of the policyholder’s death.

Income Replacement Needs: Another important consideration is the policyholder’s income replacement needs. If the policyholder is the primary breadwinner for their family. A life insurance policy with a higher value may be required to replace lost income and maintain the family’s standard of living. Factors such as current income, future earning potential, and any outstanding debts or financial obligations should be considered when determining the policy’s value.

Financial Goals and Objectives: The length and value of a policy should also align with the policyholder’s financial goals and objectives. For example, if the policyholder has specific financial milestones they want to achieve, such as paying off a mortgage or funding a child’s education, the policy should be structured to provide the necessary financial support.

Length of the policy: Life insurance policies can vary in length, with some lasting for a specified term (such as 10, 20, 30 or 40 years) and others providing cover for the policyholder’s entire life. The length of the policy often depends on the policyholder’s specific needs and financial goals.

How much does life insurance cost?

To provide insight into the cost of life insurance, we’ve provided a few examples. Each example has its unique circumstances and cover needs. Let’s delve into these examples to gain a better understanding of life insurance costs and considerations.

Joint policy example cost 1.

• Maria, 30, and Steve, 33, have three children and are seeking joint life insurance for £350,000. They want the term to be over 30 years to cover their mortgage. Maria earns £24,000 part-time, and Steve earns £42,000 as an IT developer. They are non-smokers and are in good health. Their monthly premium is £16.80, totalling £201.60 annually.

Life and income protection example cost 2.

• Rachel, 36, is a smoking police officer earning £38,000. She is looking for £180,000 life insurance cover to support her daughter. She also wants £2000/month income protection with a 6-month deferred period to support her with bills and other outgoings if she’s forced to be off work due to sickness or injury. Rachel’s monthly premium, including income protection, is £46.59, totalling £559.08 yearly.

Heart attack protection example cost 3.

• Tom, 48, a non-smoking prison officer with a history of heart attack and depression, earns £32,000. His wife, Helen, earns £30,000 as a teacher with an existing policy. Tom seeks a £100,000 lump sum and a £12,000 annual family income benefit over 20 years. His monthly premium for the lump sum and family income benefit is £77.07, totalling £924.84 annually.

Within the three examples, the nature of the policyholder’s occupation can also influence how much life insurance you need. Individuals working in high-risk occupations, such as construction or law enforcement. May face higher premiums due to the increased likelihood of workplace accidents or injuries.

Additional factors that can affect life insurance costs:

Age: Generally, younger and healthier individuals are able to secure longer-term policies with higher cover amounts. These are provided in return for lower monthly premiums. The older you are, the higher risk you’re considered because there’s a greater likelihood that you’ll injure yourself, become ill or experience a serious health condition that could result in a payout. Because of this, you can expect the premium you’re offered to increase with age, while your options for cover become more limited.

Medical History: Insurance companies may consider individuals with pre-existing medical conditions or a history of serious illnesses at higher risk. This often results in higher premiums or, even worse, a declined life insurance policy. For instance, those with conditions like diabetes might find it challenging to secure affordable cover. However, opting for a specialist diabetes insurance broker that supports health conditions can offer more viable options.

Lifestyle Choices: Lifestyle factors such as smoking, excessive alcohol consumption, or participation in high-risk activities can also impact premiums. This can result in higher premiums to compensate for the increased likelihood of a premature death. For instance, individuals who participate in activities like scuba diving may encounter difficulties obtaining affordable life insurance due to the perceived risk associated with their hobby. However, a specialist insurance broker can support individuals with specific lifestyle choices or hobbies, such as diving.

To determine the appropriate amount of cover for your needs, try out the handy calculator here;

Individuals should carefully evaluate any factors that apply to them and work with a specialist insurance broker to find the most suitable policy that meets their cover needs and budget.

For more information, speak to The Insurance Surgery today: 0800 083 2829