How much life cover to buy?
Always shop around
If you ask an insurance agent how much life insurance to buy, the answer will be a high number. Agents get paid by commission and have an interest in seeing you buy the biggest policy possible. So let's start by asking what life insurance is for. It usually produces a lump sum when you die. This allows your family and other close relatives who depend on you the chance to continue their lives with the least financial disruption. It protects the family home, pays off all the big bills and leaves them enough to live on for a few years.

So, to be blunt, if you have no close relatives and there's enough cash in the bank to pay for your funeral, there's no need to insure your life. Unless, of course, you have a burning desire to leave a lump sum to a charity or some other good cause. The only real need arises when you have dependents. Now it all comes down to you. How much do they need to survive when you die? Or is "survive" the wrong word? Perhaps you should be looking to leave more than they need so they can all be better off when you die.

As with all calculations, you have to start with real numbers. How much does it cost to maintain your current lifestyle? For this, it's a good idea to produce a reasonably detailed set of accounts showing how much you and your spouse/partner spend for your own purposes and for the children. Then you have to add in all the debts that would have to be paid off and get estimates for the cost of the funeral. But the real calculation is more complicated and explains why many people get the help of a professional to guide them through the decisions.

It's easy to say how much you pay now but, if you are young, the big bills have yet to come. The children will cost more as they grow up, with college and university fees a distant prospect. You have to decide how much future expenditure to consider. Then what do you think the inflation rate will be over this time. What may sound a good number to cover the bills now may turn out to be completely inadequate when the time comes.