How much life cover do you need?
Life insurance is one of those key issues some people prefer to dodge, but for many it is well worth considering what will happen to those closest to them in the event of their death
IT’S NOT something most of us like to think very much about, but given that it’s one of the few certainties in life – apart perhaps from the lack of a summer in Ireland – preparing for your own death is worth due consideration.
A recent survey revealed while 50 per cent of people were aware of how much money their family would need to survive on in the event of their untimely demise, very few had sufficient cover in place.
Who needs life cover?
Anyone who has dependents typically needs life protection to ensure they are financially cared for in case of an untimely death. But as John Geraghty, chief executive of LA Brokers, notes, “If you’re young, free and single, you don’t need it.” Similarly, older couples are unlikely to require such protection.
If such a case applies to you, remember not to overlook the financial input of a stay-at-home parent. While such parents might not bring in an income, without them, their childcare and housekeeping duties for example might need to be taken over by a paid employee. So this is a consideration to bear in mind.
How much cover is optimal?
While this question might be akin to “how long is a piece of string?”, financial advisers do come up with a guide. Typically, between 10 and 15 times your current annual income is needed to maintain current lifestyle. So, in the case of a family with one income of €80,000, should that person die, the family would need to be able to access a fund of about €800,000-€1.2 million. If this seems like a lot, it’s because it is.
According to Daragh Feely, sales manager at Caledonian Life, very few people have this level of life cover in place.
“We know that the average life assurance cover policy is actually under €300,000, which is only seven times the average industrial wage, or for example, for an accountant earning €70,000, that level of cover is only four times their annual income,” he says, noting there is a “clear disconnect” between what people actually have in place and what they think they should have.
As Feely points out, if your family needs €4,000 a month to live on, then €300,000 worth of cover would only last for a bit more than six years.
Irish Life has a useful online calculator at iti.ms/NLAWnOto help you determine the amount of cover you might need, while you can also discuss this with your financial advisers.
What’s the difference between the various types of life insurance available?
In short, the cheaper the product, the less cover it offers. So for example, if you are in the market for a house, your lender will likely require you to have mortgage protection at the minimum. With this policy, should you die with an outstanding loan on your home, your mortgage will be cleared. The advantage is that it gives you peace of mind, but the disadvantage is that it declines in line with your mortgage – so even though you initially received protection for your total mortgage, 20 years down the line this will have reduced significantly. In addition, if you move home after 10 years, and are 10 years older at the time, you might find getting a new policy has become more expensive.