Life insurance could be the lifeline your family needs if you are no longer around to care for them or provide income for the household. You just have to make sure you have the right level of cover.
Life insurance pays a lump sum or a regular monthly amount of money to your family on your death. It’s a way of giving your loved ones peace of mind that they’ll be financially provided for when you pass away. If your family is underinsured, there’s a possibility that they might face financial difficulty if you’re no longer there to help.
What is underinsurance?
In the case of life insurance, this might mean that the cover you have won’t cover the amount your family are trying to claim for.
What happens if you are underinsured?
If you don’t have enough cover, then your family may suffer a financial shortfall. They could struggle to pay essential household bills and may find it difficult to replace the income lost now that you are no longer around.
How to avoid being underinsured
Start by working out how much life insurance you need. How much money would your family and dependants need to maintain their standard of living without your income?
Don’t forget to include household bills, mortgage payments and other essentials into your calculations. Also factor in costs such as insurance for your home and car, phone and broadband and even extra help around the house for your partner or childcare costs.
An example of underinsurance
If you have a young family, or other people who depend on you financially then, without life insurance, you may be underinsured. This is especially so if you have outstanding debts such as a mortgage.
For example: The Smith family take out life insurance for a cover amount of £50,000. Unfortunately the main income earner passes away and they still have a mortgage of £200,000. The cover amount they took out wouldn't be enough to cover the mortgage, let alone any other debts.
Why it’s important to ensure that you and your loved ones are not underinsured
Life insurance could give you and your loved ones the peace of mind of knowing that they'll receive financial support to help them should the worst happen to you. Being underinsured puts this at risk.
Getting the right level of cover can be relatively straightforward to set up. But remember, you’ll need to keep making your payments each month, otherwise your cover will end.
Whatever you decide, it is important to think about how your family might manage financially without you.
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