Do Brits know how much life insurance they should have?

Do Brits know how much life insurance they should have?

If you’ve got dependants, it’s important to plan ahead to ensure the financial security of your loved ones is not jeopardised if you die unexpectedly. Key to that is choosing the right amount of cover, but our findings show that Brits underestimate the monetary value of their lives by as much as £140,000.

Through consumer research, MoneySuperMarket set out to establish how much Brits really think they’re worth and whether they over or underestimate their monetary value based on existing life insurance data. We asked people how much cover they thought they would need and compared this with MoneySuperMarket’s life insurance data.

The findings revealed that of those who don’t yet have life insurance, almost half (49 per cent) don’t know how much cover they’d need. People who could put a figure on the amount of cover they’d need estimated this to be £113,000 on average, which is four times the average UK annual salary.

When compared to data for people who have taken out life insurance, figures show Brits underestimated their worth by £48,809 on average. But the research also showed that there were some cases of people estimating that they’d need more life insurance than is typical for those in the same job roles who do have life insurance. Those that overestimated how much cover they would need did so by £45,183.

And when it comes to gender split, the data also revealed that men believe that they would need 25 per cent more life insurance than women (£124,533 versus £98,629 respectively).

How does a person’s job affect how much they think they’re worth?

There are many different lines of work with differing levels of responsibility and salary, and even if you’re in a couple and your partner does not earn an income, they should still be insured. But how does someone’s job play into their perception of how much life insurance they need? Do different professions impact how much they deem themselves to be worth?

Looking at those who don’t currently have life insurance – based on consumer research – employees in the art and design industry valued their lives the most. Workers in the sector estimated that they would need more than a £250,000 of life insurance on average – over £100,000 more than the actual average for people in this industry.

On the other hand, those working in childcare put their value 15 times lower than the art and design sector, estimating that they’d only need £15,000 worth of life insurance – more than seven times lower than their actual amount (£112,315).

MoneySuperMarket life insurance data showed that company directors were found to have the highest average cover amount (£222,586), followed by doctors (£187,410), dentists (£168,214), marketing professionals (£161,575) and those working in sport and fitness (£157,894).

But it is the UK’s estate agents that underestimate how much they’re worth by the greatest amount  - those with no life insurance thought they’d need £35,000 but actual data for people working in property identified an average amount of £173,095, a massive £138,095 difference.

Results for each industry have been compared based on consumer research which asked respondents to put a value on how much life insurance cover they think they’d need (in other words, how much they think they’re worth). This was cross-referenced with MoneySuperMarket data for people who have taken out life insurance policies.

Top ten professions that undervalue themselves

Top ten professions that overvalue themselves

Location, location, location: how much life insurance do residents in different areas of the UK believe they need?

One of the biggest areas for financial concern for people taking out life insurance is making sure the cost of repaying their mortgage is taken care of if they die. Mortgage payments may be the largest outgoing someone has to pay each month, so if a household’s income was dramatically reduced due to the death of a family member this could put huge financial strain on their dependants.

Unsurprisingly, Londoners were found to have the most left to pay on their mortgages, with payments averaging £152,727 for those that don’t have life insurance. People living in the capital were also least likely to have life insurance (70 per cent) compared with other areas of the UK, posing a risk to dependants who may be relying on someone else’s salary to contribute towards these payments.

Those living in the South East (£117,885) and North West (£113,378) came second and third respectively in terms of the highest amounts left to pay on their mortgages, but it's good news if you live in the North East - people living here have only £38,636 left to pay on average.

But how much life insurance do people in these regions believe they need?

While those in London, the South East and North West had the largest sums still to pay on their mortgage, they also estimated that they'd need more life insurance cover than the other regions with Londoners putting the figure at £134,156 compared to £126,069 in the North West and £117,959 in the South East.

Conversely, residents from Northern Ireland thought that they would need the lowest life insurance cover of all regions, with their total sum of £57,105 being less than half that of the estimated cover across all three regions.

How much life insurance do residents in different areas of the UK believe they need?

How to calculate how much life insurance you need

Life insurance can provide peace of mind that your loved ones will be financially looked after if you were to die unexpectedly. Ask yourself whether your dependants would be financially secure without you. Would they be able to cover daily expenses and mortgage repayments?

And if you’re part of a couple, consider a joint policy that covers you both. Even if your partner is not earning an income, he or she should be insured. The policy proceeds could then take care of paying for childcare, cleaning or other needs if they were no longer around.

Some advisors recommend that life insurance worth ten times your annual salary is a good guide to the amount you need, but everyone’s situation is different. You will need to determine what sum you require to cover your financial commitments, so it’s worth considering:

  • Your dependants – do other people in your family rely on your income? This might be a partner, children or even a friend you own a home with. How much do you pay to cover childcare costs, your children’s education, and bills (such as your mortgage)?
  • Your monthly income. Are you the sole earner in your family? If so, consider how your loved ones would be affected if they could no longer count on your salary coming in every month
  • Whether you have life cover as an employee benefit - check with your employer. It probably won’t be as much as you need, but it will reduce the additional amount you need to get.

Additionally, calculating your monthly take-home pay after tax can be a good place to start. From this you can deduct any bills that won’t need to be paid in the event that you pass away, for example, gym membership and mobile phone bills. By multiplying this figure by 12 you will find out the annual amount your family would need to maintain their current standard of living, although you may want to give yourself a little margin for error. 

Once you have calculated a rough sum, you then need to consider what type of life insurance policy is best for you. It’s worth reading up on all options and to find a policy that’s best suited to your needs.

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