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How Much Cover?
There is no easy way of working out the right amount of life insurance that you’ll need. You maybe have come across the formulae, five or ten times your before tax income, for working out how much coverage you’ll need.
This might make the sum simple, but it doesn’t take into account your own personal circumstances, so you could end up insuring for too little or too much. The best way is simple to estimate what your dependants need and for how long. There are life insurance calculators which show you how much to insure for, assuming your main function is the provision of income for your dependants and that you hope to help them maintain the same standard of living as they enjoy now, if you are married or living with a partner, then it is always best practice to use the calculator separately.
Before you fill in the calculator, you will be required to make a list of:
* The lump-sum of money that will be required on or after your death
* The lump-sum that your dependants will receive on your death
* The income that will be lost on your death
* The excess expenses that your dependants will have to meet after your death
* The income gained after your death
* The outgoings that will be saved through your death
Income that will be lost when you die
When you are calculating your income you should always include both your regular monthly income (multiplied by 12 for an annual amount) and any irregular income that your dependants would no longer receive after your death, such as:
* Your pay afar your deductions
* Your pension (both state and other), it will no longer provide for dependants
* Your state benefits
* Any maintenance payments you may receive
* Your monthly income from savings and/or investments
* Your annual bonuses from your job
* Your income from investments that would be used to pay for expenses in the event of your death and would not need to be replaced
If you are a couple with children or you café for another relative, you should also consider lost income from the surviving partner giving up work to look after other dependants. When you keep your personal finances separate from your partners, the amount of income lost will be the amount that the dead partner used to contribute to the running of the home.
Income gained and outgoings saved through your death
Include here any widows or widowers pension that your partner would receive or dependants pension, if you have any children and any income that would be gained when you’re partnered increased his/her earnings.
The kinds of outgoings that you should include here are:
* All or part of your mortgage payments – when the mortgage will be paid off after your death
* The amount by which your current living expenses will be reduced, i.e. travelling expenses, food bills etc… (bearing in mind that the code of heating and lighting your home is unlikely to fall dramatically)
* Any personal expenditure (i.e. spending on leisure activities and clothes)
* Payments into a personal pension
* Life insurance premiums
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