To most people, a life insurance policy is a way of financially protecting their family or loved ones in the event of death. The thought of passing away seems unpleasant, but the truth is it’s a fact facing all of us of which nobody knows when it is going to happen.
A level term insurance policy gives you peace of mind by ensuring your family and dependents are financially taken care of if the worst happens. Now, the question that arises when buying this cover is, how much is enough to support my family?
There is no exact answer to this question, but you can factor in a few considerations to get an estimated amount of cover that suits the specific needs of your family or loved ones.
In this simple guide, we explain in detail what a level term insurance policy is and also show you how to estimate how much you may need for your family.
What is level term insurance?
A level term insurance policy runs for a period of time that you choose during the application process. The death benefit and the premiums remain constant for the duration of the contract. The length of the contract varies and can be as short as 2 years or as long as 40 years or even longer. As your policy approaches its end date, you may have the option to renew your policy. It is always advisable to check your policies terms and conditions.
Level term insurance is the most popular form of life insurance; it’s simple in the sense that you do not have to worry about the premiums changing throughout the life of the policy.
How much level term insurance do you need to support your family?
One approach to calculating the cover amount you may need is a multiplication of your total income. However, the type of security and protection you’re looking for should determine how much level term insurance you need.
When buying this cover, the first thing you need to ask yourself is how much money would be sufficient to keep your dependents or loved ones afloat when you die. This is particularly vital if you are the sole provider for your family.
The premium will be set in part once you have identified the length and amount of cover you want. It is important to ensure you decide on the correct amount of cover to ensure you do not leave your dependents or loved ones financially short in the event of your passing.
The following are three key factors to consider when calculating the amount of level term insurance that is enough to support your family:
Other financial liabilities
One of the reasons to take out life insurance policies is to pay-off an outstanding mortgage if the worst happens. Like any caring parent, guardian or partner, you want to ensure your partner and/or dependents have a comfortable place they can call home even after you’ve passed away.
When deciding how much insurance you need, consider any outstanding debts and other financial liabilities. The goal is to ensure the amount your policy pays out is enough to pay off all of the outstanding debts that you may have and to have enough left over to maintain a standard of living.
Can you afford level term life insurance?
Your income and lifestyle will help you to determine how much cover is affordable for you. Factor in your disposable income when deciding whether you can afford your monthly premium. After all, there is no point in taking out a level term life insurance policy if you cannot afford to pay the premiums.
When considering level term insurance, start by calculating how much of your income goes towards basic expenses like food, household bills, and other necessities like childcare. This will help you to better understand the amount of cover your family may need should you pass away.
One further consideration in determining the amount of cover you wish your policy to provide in the event of you passing away, is whether you have a death in service benefit provided by your employer. It is worth considering whether this benefit is still available to you should you leave your employment.
The purpose of taking out a level term life insurance policy is to financially provide for your dependents or loved ones in the event of you passing away.
Taking out a level term life insurance policy is an important decision considering the effect any policy payout may have on your family. Taking into account some of the considerations mentioned above may help you to determine the cover amount you need.