For the ordinary consumer, buying life insurance cover is a more risky business than it once was, due to the proliferation of routes you can take in the internet age.
Recently, the Association of British Insurers (ABI) warned consumers of the dangers of buying a life policy through ‘price comparison’ websites, where they may make a purchase without understanding, or even having seen, the terms and conditions of the life insurance policy they are signing.
The ‘flipside’ of the argument, of course, is that buying a life insurance policy has never been easier with the availability of quality independent financial advice. In fact, as the cost of cover has come down in recent years, it can often be the case that you will get a life insurance deal today that will be cheaper than the life cover you bought 10 years ago – even though you are older.
How much cover should I have?
In the interests of providing financial security for your dependants, at Principle First we recommend your life insurance cover should be enough to clear your debts, and also replace your income.
Take as an example an individual earning £20,000 gross per annum. Assuming a payout of 5% per year, replacing that income would require a lump sum investment of £400,000, provided by your life insurance policy.
Let’s assume that his debts, including the remainder of his mortgage, stand at £85,000.
To clear his debt and replace his salary, his total life insurance cover would therefore have to be £485,000.
We also recommend taking critical illness insurance, which provides a lump sum payment if a serious illness strikes, forcing you to give up work. Often your spouse might also have to give up work, in order to become your carer. We would recommend critical illness cover equal to two years of your joint net salaries, providing a two-year buffer to see you through such an eventuality.
