Brits underestimate insurance cover need by up to £140k
The difference between how much people think they need as part of their life insurance cover and the real amount means many are left significantly underinsured.
People without life insurance cover were asked about how much they thought they would need. Nearly half (49%) were unsure about the level required, estimating that £113,009 would be enough.
However, according to MoneySuperMarket, the average UK mortgage amounts to £123,423, which could leave people with a considerable shortfall.
Looking at insurance needs based on occupation/industry, the comparison site found that estate agents believed they would need just £35,000 of life insurance cover. But this is £138,095 less than the average cover amount taken out by colleagues with an existing policy.
This is followed by childcare workers who underestimate their insurance needs by £97,315. Their estimate of £15,000 is seven times lower than their actual average cover amount of £112,315.
Next, those working in IT thought they would need £102,000 of life insurance cover. However, the figure’s closer to £188,000.
On the flip side, those working in art and design actually overestimated how much insurance cover they would require – £258,000 whereas the industry average stands at £141,000.
MoneySuperMarket also found that men believe they need 25% more life insurance cover than women, at £124,000 and £98,000 respectively.
Kevin Pratt, consumer affairs expert at MoneySuperMarket, said: “Life insurance – specifically term insurance – pays out a lump sum or a regular income if you die before a certain date. It’s there to settle any debts you may have, principally your mortgage, and to provide money for your dependants. It’s an absolutely crucial foundation for family finances, but millions of Brits either don’t have it, or don’t have enough.
“Determining what figure you require isn’t a straightforward process and it’s important to consider everything from mortgage repayments to personal loans to your regular household bills when trying to work this out. And don’t forget other expenses such as children’s education costs, whether that’s a school trip, fees or getting through university.”
How much cover do you need?
Pratt said that as a rough outline, cover equaling around 10 times your annual salary is a good starting point. However, everyone’s situation is different so it’s always best to consider your own needs in detail.
Further, it’s not just breadwinners who need cover. “Money should be available if the person who looks after the home dies so that alternative arrangements can be made for the work they do,” he said.
Pratt added: “It’s not a happy topic to think about, but the financial consequences of not having insurance in place can be devastating.”