In my last few posts I have talked about life insurance, income insurance and critical illness insurance, but the most important questions are how much have you got, and how much do you need. There is usually a big difference.
There is no standard answer for this, everyone’s circumstances and aspirations and needs are different, but perhaps a starting point would be to face the worst and try and put a few figures into the answers to these scenarios.
If you are dead, what will the living that you leave behind need – how much to pay off debts? what other demands may there be, funding for children’s education and what else? How much income to carry on at their present standard of living etc.?
If you are ill and can no longer work how long will your employer continue to pay you? How much income will you and your family need after that and for how long? How much might be needed to make changes for your new circumstances if demanded, wheelchair access, house move, converted car, etc.?
If after your death your partner turns to me with the proceeds of a life insurance policy to invest for income then for every £10,000 extra per annum that is wanted I hope that there is at least £250,000 to invest.
One problem with even a maximum income protection insurance policy is that it will stop – typically at your previously expected retirement age, what happens then ? Pensions if you have anything much and the state pension. But remember in this scenario you are still alive so more will be needed, so perhaps you need an extra £15,000 instead of the £10,000 above. A critical illness insurance policy can be used here to be invested to replace the income protection money that will stop at the policy maturity date.
So I hope that for every £15,000 extra income that you need there will be £375,000 invested or to invest to use to produce that income.
In all of the above I have ignored that naughty little word inflation. It is little at the moment but will almost certainly grow again.
Get your pen and paper out and do some estimates and if necessary we can help to factor inflation in as well.