Very often people wonder what level of life insurance they should have and often get a little muddled with the figures.
Therefore, in today’s blog we take a look at budgeting for life insurance and what things you may want to consider when buying.
It’s different for everyone and one way might be better than another depending on your situation. In any case, if you are unsure you should consult an independent financial adviser for professional advice.
Budgeting via the Earnings Approach
This type of approach offers a simple way to calculate insurance requirements. The aim of this one is to simply replace your income if you’re the main breadwinner in the home. Essentially you work out your annual salary and then multiply that to get a level of cover. For some, it’s three times the annual salary. For others, it may be ten times that amount. However, if you don’t have lots of surplus cash but still want cover it could be the same level of a year’s salary or even less.
Budgeting via the Needs Approach
This is all about attaining the family lifestyle should you not be around any more. It can include predicting expenses such as child care or schooling for example and paying off any debts in the event of your death.
Budgeting via the Needs Change Over Time Approach
We all know that needs change when you live your life. You may go from single, to couple, to married and then end up with two children. All of these things affect life insurance cover. In short, the more you grow, the more expenses you’ll have. Even moving from one property to another over time can mean your mortgage protection value may go up. So this kind of approach is all about looking at the future and what that might mean cost wise.