The amount of cover required varies greatly depending on your health and lifestyle, financial situation, number of dependants and amount of debt. Most insurers set minimum and maximum pay-out figures, which determine monthly premiums, but there is plenty of flexibility between these set amounts.
The question you need to ask is, what amount of money is required to provide for your family when you no longer can?
The larger the lump sum pay-out, the highly the monthly premiums. Purchasing life insurance should never prove a financial burden on you and your family. Only purchase the amount of cover you can currently afford. Most insurers provide online insurance cover calculators helping you determine the lump sum required by your dependants. This calculator uses your monthly expense figures such as rent, food and utility charges to calculate a figure required at the end of the term.
Many life insurance companies recommend a sum equal to ten times your annual salary. You can, however, settle on a figure closer to twenty-five times your annual income if you need to provide for several young children. The amount of cover and how much you can afford on monthly premiums is entirely up to you. Insurers may take inflation into account and raise monthly premiums accordingly, but they may not mean your money will buy less twenty years from now.
Life cover also depends on health and lifestyle. If you anticipate being diagnosed with a critical or terminal illness then you should take out the necessary insurance plan to protect your family financially. Insurance policies should also cover outstanding debts and funeral costs. The lump sum required to cover all these circumstances may seem exorbitant, but monthly payments now could save your family from financial woes at the time of your death.