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How Much Life Insurance Do I Need In 2024

Elaine Brookes Steve Case

Author: Steve Case - Insurance Expert

Reviewed & Fact Checked By: Elaine Brookes

Updated: 6th July 2024

How much life insurance do I need?

It’s a common question: how much life insurance do I need if I’m single or part of a family unit?

A general guideline suggests obtaining insurance coverage approximately equal to 10 times the income of the household’s primary breadwinner.

This level of coverage aims to ensure that your family can continue to live comfortably in your absence.
However, weighing this against what you can spend on monthly premiums is important, as larger coverage amounts lead to higher premium costs.

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The tables below help illustrate different aspects and considerations for determining life insurance needs.

Factors Influencing Life Insurance Needs

FactorDescriptionConsideration
Income ReplacementAmount needed to support dependents’ living standardsMultiply annual income by the number of years support is needed
Debts & LoansTotal outstanding debts (excluding mortgage)The sum of all personal loans, credit cards, etc.
Education CostsFuture education expenses for childrenEstimate costs for school fees, university, etc.
Funeral ExpensesExpected cost of funeral and related servicesAverage costs can range significantly
Inheritance TaxPotential tax on the estateConsider if the estate value exceeds the tax-free allowance

Types of Life Insurance Policies

Policy TypeDescriptionSuitable For
Term Life InsuranceProvides coverage for a specific termThose looking for temporary coverage or with limited budgets
Whole Life InsuranceCovers the insured for their entire lifeThose seeking lifelong coverage and cash value accumulation
Decreasing Term InsuranceCoverage amount decreases over timePrimarily for covering a mortgage or decreasing debts
Joint Life InsuranceCovers two people and typically pays out on the first deathCouples, especially if they share financial commitments

Life Insurance Coverage Recommendations

ScenarioCoverage RecommendationRationale
Single with No Dependents5-10 times annual incomeCover debts and funeral costs and provide a financial cushion
Married or Partnered10-15 times annual incomeSupport surviving partner, cover debts and future expenses
With Children15-20 times annual incomeProvide for children’s upbringing, education, and security
Business OwnersDepends on business value and debtsEnsure business continuity and cover any business-related debts

Additional Life Insurance Considerations

ConsiderationDescriptionImpact on Coverage
Critical Illness CoverProvides a lump sum on diagnosis of a specified illnessCan increase the total coverage needed
Income ProtectionReplaces a portion of income if unable to work due to illness or injuryMay reduce the amount of life insurance needed
Policy RidersAdditional benefits that can be added to a policyCan increase premiums but provide more comprehensive coverage

Average Life Insurance Costs by Age and Policy Type

Age RangeTerm Life (£/month)Whole Life (£/month)
20-30£10-£20£50-£100
31-40£15-£30£70-£150
41-50£20-£40£90-£200
51-60£30-£70£120-£300

Note: These costs are indicative and can vary based on health, lifestyle, and coverage amount.

Many People Still Remain Uninsured

Everyone with a family has the same worries. How will they be cared for if something happens to you or your wage-earning partner? The sad truth is too many don’t know.

Research figures published on MoneyFacts.co.uk just last year revealed…

“46% of those with children aged 18 or under, and/or married and in a long-term relationship, don’t have any life insurance, a figure which rises to 72% when considering those without critical illness cover.”

In reality, thousands of people are uninsured, and some are underinsured.

Some may even lack the right type of insurance. The main myth is that insurance isn’t affordable.

It is affordable, provided you research providers, shop around, and, most importantly, be realistic about your needs.

Have you got yourself life insurance for your day-to-day working life locally? How about when you decide to work overseas?

According to thisismoney.co.uk, three-quarters of adults with families have life insurance in the United Kingdom. Therefore, one in four people still doesn’t have life insurance in the U.K.

But this does not matter only within the UK. UK expatriates working overseas are eligible and should have ex-pat life insurance cover.

If you are yet to join the life insurance bandwagon, your first question must be, “Where should I start?”

How Much Life Insurance Do I Need In The UK?

As this is an individual and personal decision, it’s likely to depend on various factors, such as how much your dependents depend on your income versus how much insurance costs and the amount you can afford to spend each month.

However, Britons habitually underestimate the amount of life insurance they’ll need.

If you’re not sure about coverage, take a look at these aspects before making your final decision:

Covering Your Mortgage

If you’re looking for life insurance in the UK, it’s important to consider how your family would afford the mortgage repayments if you died.

Many homeowners choose to take out a mortgage life insurance policy, which pays out a lump sum large enough to pay off their mortgage debt.

Mortgage life insurance policies typically run until the mortgage is paid off and can be either level term or decreasing term cover.

Most people with repayment mortgages go for decreasing life policies, which means the size of the pay-out decreases as your mortgage debt gets smaller over time.

If you currently have an interest-only mortgage and are only repaying the mortgage interest, not the capital debt, remember to include both capital and interest when working out how much cover you need.

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How to Calculate Life Insurance Needs

To work out how much life insurance we need, we consider our debts, income, and family’s future plans.

  • Check our current financial state.
  • Think about what we plan for our loved ones.

Years-Until-Retirement Method

We find out how much life insurance we need using the years-until-retirement method. We multiply the number of years until we retire by our yearly income. This shows how much support our families would need if something happened to us before retirement.

This way, we look at more than just immediate debts or costs. It also covers ongoing needs up to what would have been our retirement age.

Standard-of-Living Method

The Standard-of-Living Method helps us determine how much life insurance we need. It aims to keep our family’s daily life the same if something happens to us.

For a spouse or partner, this means getting enough insurance to equal four times the yearly salary. This amount helps with everyday costs and keeps things steady for those relying on us.

This approach also considers the cost of raising kids and their education until they’re 18 or finish university in England. It covers tuition fees and living expenses for a three-year course.

The goal is to ensure our children can still reach their educational dreams, even if money gets tight after losing a family member. We want to protect our loved ones and ensure they can live well now and have opportunities later without financial worry during hard times.

Debt, Income, Mortgage, Education (DIME) Method

We use the DIME method to calculate our life insurance needs. This method considers our debts, income, mortgage, and education costs, as well as university fees and funeral expenses. It helps ensure our family has enough money if something happens to us.

Life insurance isn’t only for homeowners; renters can benefit as well. The cover needed depends on a spouse or partner’s salary and their way of living. With DIME, we find out the lump sum required to keep loved ones secure after death.

Covering family expenses

Regarding life insurance, it’s important to consider more than just your debts. If something were to happen to you, your loved ones would need to be able to cover essential expenses like food and bills.

That’s why taking out a life insurance policy is a good idea, particularly if you are a Mum. A policy can provide your family with a financial cushion should you pass away, which can help them pay for things like childcare or education costs.

So, if you’re considering taking out life insurance, weigh all your options and compare policies. That way, you can be sure you’re getting the best deal possible.

Replacing Your Income

Consider how much money you’ll need to keep coming in each month. You want to ensure your policy covers your current and future expenses, but you don’t want to pay too high monthly premiums.

Try multiplying your salary by the years you need to keep earning – this will give you a good estimate of the payout you’ll need.

Critical Illness

Critical illness insurance is designed to provide a tax-free lump sum if you’re diagnosed with a serious illness during the policy term.

The lump sum can be used in any way you want, such as to help pay mortgage repayments, replace lost income, pay for private treatment, or make adaptations to your home.

You might think that your health is good and that you have a young family dependent on your income, so you don’t need this type of coverage. Unfortunately, no one knows what is around the corner, and critical illness can happen to anyone at any time.

According to the Association of British Insurers (ABI), one in three people in the UK will develop some form of cancer during their lifetime.

Moreover, the ABI says that around 150,000 people in the UK have a heart attack every year, and approximately four out of every ten men and six out of every ten women will die from coronary heart disease.

If you’re the primary breadwinner in your family, imagine how they would cope financially if you became seriously ill and couldn’t work. This is where critical illness cover could help.

Of course, no one likes to think about what might happen if they become seriously ill, but taking out critical illness cover gives you peace of mind that you and your family would be financially protected should the worst happen.

Many types of critical illness policies are available, and the level of coverage will vary from provider to provider. Shopping around and comparing policies is important to ensure you get the right cover for your needs.

Covering Funeral Costs

One of the main purposes of life insurance is to provide financial protection for your loved ones in the event of your death.

This can include covering the costs of your funeral. Funeral costs can be significant, and they can be a burden on your loved ones at an already difficult time.

Life insurance can help to ease this burden by providing the funds to pay for your funeral.

You can either factor the extra cost of a funeral into your life insurance policy or opt for a specialist funeral plan.

A funeral plan is a way of arranging and paying for your funeral before you die so you know that your wishes are taken care of and your loved ones are not left with a large bill.

You can pay instalments or a lump sum to a funeral planner, which invests your money into an insurance policy or an independent trust fund.

Either way, life insurance can provide peace of mind by knowing that your funeral costs are covered.

What Are The Main Types Of Life Insurance?

There are two different types of life insurance you can get. Read on to discover which one is right for you and your situation.

Term Life Insurance

One of the different types of life insurance you can choose is term life insurance. This is considered one of the most basic forms of insurance. It offers death benefit protection but no building up of cash value within it.

This may be the best coverage you can apply for if you are a young person in good health with a family to look after.

For How Long Does It Cover You?

This is coverage that can be bought for a particular length of time. Typical term life insurance packages tend to come in increments of five years. They start at ten years and can get as high as 30 or even longer.

Some suitable insurance carriers will also offer a one-year renewable term.

Pros and Cons

So, what are the advantages and disadvantages of taking such cover?

Term life insurance is one of the best-known types of life insurance policy and one of the most affordable. You’d be hard-pressed to find a single financial planner who would recommend other types of life insurance, especially for young ex-pats.

Of course, this is very generalised, and you need to consider your situation and needs before choosing a life insurance plan that suits you.

If you have term life insurance, particularly a level term life insurance policy, the premium you must pay through the policy period stays the same. There’s no need to worry about increased costs or nasty surprises.

One of the biggest problems with this type of life insurance policy is that it renews at an increased premium.

This means that if you get this insurance for five years and then get it for another five years, the amount you have to pay for it goes up.

In some cases,  it can rise by as much as 200 percent. However, this isn’t always the case. Some only increase by a tiny amount, whereas others may keep the premium the same but decrease the face amount.

Examples of Term Life Insurance

Term life insurance comes in various types. We have listed them below.

  • Decreasing Term life insurance: This keeps your policy premium the same throughout its lifetime. However, the death benefit goes down over the period you have it.
  • Level Term Life Insurance: If the idea of losing death benefits doesn’t appeal, you can always get level-term life insurance. This type of insurance policy offers fixed premiums and fixed death benefits for the length of your coverage.

Whole Of Life Insurance

3 Key Questions to Consider about Life Insurance

Do you really need it?

Do I need life insurance has to be the most popular question asked. The simplest way to answer this is to consider who relies on you getting paid.

Do you have children, dependent relatives, or a partner reliant on your income to pay the mortgage?

You need life insurance if your earnings support other people’s living costs. If you get your wages paid and are free to splash every last penny of it any way you please without affecting anyone, you won’t need the cover.

Chances are, though, someone in your life would need financial support if you weren’t around, even if that’s a distant relative who shows up at your door only when he or she needs something.

And also, think about this… It’s not just for homeowners to make sure the mortgage gets paid.

People who rent also need it to make sure the rent gets paid. You don’t need to own your home to insure your family.

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How much should the policy cover?

The policy’s value should at least cover what’s left to be paid on the mortgage. If there’s no mortgage, the minimum should clear the debts.

Things to consider are:

  • Outstanding debts include the family car and any household items bought on credit.
  • Dependent parents may need care costs, such as ongoing live-in support, rentals for a retirement home or a part-time carer.
  • The ongoing care costs for children and their living costs.
  • Not to mention the rising cost of living.

The reality is that even with life insurance in place, money only goes so far.

You can’t protect against everything, but you can think about where the money would need to be spent to determine how much coverage you need.

What type of cover should I get?

As we mentioned earlier, there are primarily only two common life insurance products: whole of life and term life.

If you’re after affordability, term cover is suited to more affordable life insurance quotes. Whole of life cover is pricier because it lasts until you die.

With term life cover, the idea is to have the policy cover your major debts.

There is also decreasing term cover, which is more suitable when your most pressing concern for insurance is to ensure the mortgage is paid while getting the most affordable insurance premium.

With a decreasing term policy, the monthly premiums and the payout decrease over the term of the policy.

Those are just for life insurance. It’s also smart to consider the family background of critical health conditions and other life-threatening conditions.

Suppose there’s a history of cancer, heart conditions, or brain disorders, which would increase your care costs while decreasing your income due to being unable to work. In that case, life insurance doesn’t help you as it is only payable upon the policyholder’s death.

Critical illness cover is available to insure against becoming ill, and if you’re more concerned about lost earnings, then income protection could be more suitable.

The Average Cost Of Life Insurance?

The UK’s average cost of life insurance depends on various factors, including age, sex, and health history. However, as a general guide, you can expect to pay around £10-15 per month for life insurance cover.

It’s important to shop around to find the best deal on life insurance, as premiums can vary significantly from one provider to another.

It’s crucial to inform your family after you get one so they don’t have to struggle with a lost and unclaimed insurance policy when you pass away.

You can use a comparison website such as Insurance Hero to find the cheapest life insurance policies available in the UK. You might also want to read our detailed guide, which many have found helpful.

How Much Life Insurance Do I Need Final Thoughts

Before you start work in the United Kingdom or travel overseas, choose the right type of life insurance that suits you.

Whether you go with term life insurance or whole of life insurance, you must ensure that you get insurance from a reliable team of experts.

For more information on how we can help you, click here!

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