Life cover is one of those annoying payments you make each month and hope you will never need — at least not for a very long time. But the reality is that if you have debt and responsibilities, it is something you have to consider.
The rule of thumb is that the more capital you have the less cover you need, while the more responsibilities you have the more cover you need.
According to Tony Barrett, regional director at Barnard Jacobs Mellet -Private Client Services, life cover should be seen in terms of your debts, assets and personal circumstances.
If you are in your early twenties with no debt or family to provide for, your need for life cover is limited. As you get older you may start to accumulate debt, such as a car or a home, and if you have children, you need to provide for their education. Once the children have flown the nest, you will have most likely paid off your debts and have a strong capital base. Your need for cover is again very limited.
According to Stuart Wenman, product manager at Liberty Life, you need to understand what cover you actually require. ‘A good financial adviser can help you identify the types of things you need to provide for in the event of death or disability. The key is a good adviser who will review your cover regularly, which may result in you reducing cover.”
In your twenties you may want to take out disability cover in case you are unable to continue to work. ‘I don’t think many people realise this, but if you are disabled at 30 you have to replace 35 years of income, adjusted for inflation. This is a big cost for any family to bear if they don’t have this cover in place,” says Wenman.
As you get older and have hopefully grown a healthy capital base with no debts, you may still want to keep some life cover to provide for estate duty.