Choosing the right level of cover can sometimes be tricky, especially if you want to protect your family.
If you are taking out cover to protect your mortgage, choosing the right amount of cover is fairly straightforward. To ensure your mortgage is paid off if you were to pass away, your cover should match your mortgage debt.
If you have an interest-only mortgage, your mortgage debt stays the same throughout the term of the mortgage. Choosing a level term policy will ensure this debt is paid. If you have a repayment mortgage, your mortgage debt reduces over the term of the mortgage.
A properly arranged mortgage protection policy will reduce in line with your mortgage, so the cover amount you choose should match the current outstanding balance on your mortgage.
If you wish to protect a partner and/or children, the amount of cover you choose will depend on how many dependants there are, and the standard of living you wish them to have. You may also need to take into consideration other debts that may need to be paid.
The level of cover will also of course depend on your budget, as it's important to take out cover that's affordable to you.
As a rough guide, we recommend cover of at least £150,000 per child, but this really does depend on your circumstances and the age of the child in question.
£150,000 may seem like a lot of money, but recent research estimates it can cost £210,000 to raise a child until the age of 21!
A more affordable way of protecting your family is to take out a policy that pays an income each year rather than one big lump sum. You can choose how much cover you'd like your family to receive each year, and a simple starting point is to arrange for the cover to match your annual salary.
By simply replacing the money you usually earn, you will ensure your family continues to have their current stand of living, and they won't have to worry about making sure the lump sum lasts until your children have grown up.
There are many things to consider, so give us a call on 0800 316 3166 so that we can help you make the best choices for your circumstances.