How Much Life Insurance Cover Do You Need?
Not having enough life cover is just as dangerous as having no life insurance at all.
Failing to take out enough life cover can render your efforts to secure and protect your dependents' financial future fruitless. Think about it. There is no point taking out a life insurance policy and paying for it every month if, after you are no longer around, there isn't going to be enough money to pay for your children's education, the mortgage on your home or the debt that you have incurred for that matter.
After all, the whole purpose of having life insurance is to ensure that your family's future financial needs are adequately provided for and that they will be able to maintain their current standard of living should you die or if you are no longer able to earn an income.
So how much life cover do you actually need?
The amount of life cover needed differs from person to person and will be influenced by a variety of factors. These include your age, whether you are married or not, if you have children, how many children you have, your outstanding debts and your current income.
Potential tax commitments including estate duty, capital gains tax, outstanding income tax, as well as other costs such as funeral costs also need to be accounted for when determining how much life cover is required.
At the very least, the cover you take must provide enough to replace the income you are now contributing to the family, as well as pay for any outstanding debts you might have so that you don't leave your dependents with that liability.
It is usual for one to take out a life policy for between six and 20 times his/her annual salary. The policy should also take into account any outstanding debts, home loans and vehicle finance etc. Inflation also needs to be considered when determining the amount of cover you need.
The cost of living goes up every year and while R1-million might be enough to support your family now, it might not be enough in ten or 15 years time.
The amount of cover you can take will also be affected by how much you can afford to pay on premiums each month. Premiums are determined on age, state of health, lifestyle, hereditary factors and a host of other factors into consideration.
A healthy young person who doesn't smoke or engage in hazardous sports like sky-diving is going to pay less each month for the same amount of cover than someone of the same age who does. In general, premiums go up with age so a 40 year old is going to be paying more than someone in their twenties.