The amount of life insurance you take out is a personal choice and some people choose to take more cover than others.
To help you work out how much you might need, think about:
Depending on your circumstances, you may need life insurance to:
If you have children – whether they’re young or adult dependents – you may want to think about the type of financial support they may need if you weren’t around. This may include childcare costs, day-to-day living expenses or perhaps carer costs.
The amount of money needed will depend on:
According to the Child Poverty Action Group, the basic cost of raising a child until their 18th birthday for a single parent was over £200,000 in 2022.
If you’re the main earner, the loss of your income could have a big impact on your family’s lifestyle. Look at your regular income after tax, as well as your family’s ongoing expenses, such as food, household bills or rent for example. This can give you an idea of how much they may need, financially.
If your partner is the main earner, it’s still important to consider your contribution to the household. For example, if you’re a stay-at-home parent, your family may need money to cover childcare costs to enable your partner to go to work.
According to MoneyHelper, the average cost of sending a child under 2 to nursery in the UK is:
If you have a mortgage, the money received from life insurance can be used to repay the debt, so your family doesn’t have to. It’s not compulsory but, if you do have dependents, this can help them cover the mortgage and keep their home.
The amount of cover needed will depend on:
Your mortgage balance can be found on your latest statement, through online banking or your mobile banking app. Depending on your repayment terms, you may consider either a level term or decreasing term policy.
Research on behalf of HSBC reveals only a third of people in the UK say they fully understand the phrases ‘level cover’ and ‘decreasing term’. After the terms were explained to them, most people (53%) believe ‘level cover’ is the most important consideration when choosing which life insurance policy to purchase.
A level term insurance policy is where the amount of cover stays the same for as long as the policy is in place. So, if you were to die during a fixed period (the term), your family will be paid a pre-agreed sum of money. If you were to die after this period, they’ll be no payout.
Level cover can help pay everyday living costs, childcare or an interest-only mortgage – where the amount you owe stays the same, and the balance needs to be repaid when the mortgage ends.
A decreasing term insurance policy is where the amount of cover reduces throughout the term of the policy. So, if you were to die during a fixed period (the term), the amount paid to your family will depend on how long has passed since the policy was taken out. If you were to die after this period, they’ll be no payout.
Decreasing cover is often purchased to help clear a specific debt, such as a repayment mortgage. As this type of debt decreases over time, so will the amount of insurance.
Once you’ve decided how much you want to cover, you also need to decide how long you want your policy to last.
If you have children to support, you may decide to provide cover until the youngest reaches adulthood and becomes financially independent. This could be 18 or 21 if they go to university.
If you’re covering your partner, you may need to replace some income until they retire or perhaps they’d need support for a few years to adjust. This is where it’s best to talk to each other about how things would change and what they would need.
If you only want to make sure your mortgage is repaid, the length of your policy will need to cover the term remaining on your mortgage. You may have more than one mortgage account, with potentially different end dates, so it’s important to check these.
If you have enough savings or investments available, you may want to deduct this amount from the level of life cover you need. This way, you’re not paying for more insurance than you need.
You should also consider any life insurance you may already have, through your employer for example. Keep in mind – when you leave your job, you’ll lose this cover.
While it’s important to financially protect your loved ones, make sure it’s at a level that you can afford. The higher your cover amount, the higher your monthly premiums will be.
However, other factors will also be considered, such as age and lifestyle. For example, the younger you are, the cheaper your quote will be.
If you need any help with life insurance, you can chat to one of our financial advisers. They’ll be happy to recommend a policy and level of cover that’s right for you and your family.
Our protection advice is available, without a fee, to UK residents over 18, who hold an HSBC current or savings account.
All figures, unless otherwise stated, are from Sticky and Censuswide for HSBC. Total sample size was 2,008 adults. Fieldwork was undertaken between 2 to 8 December 2022. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+).
