Having a gap in life insurance is like having a hole in your safety net. If the main breadwinner passes away, the family might not have enough money to pay bills, the mortgage, or other expenses.
Here, Which? takes a look at the average life insurance gap and how much it could cost to close.
Find out more:What's the average protection gap?
On average, households with dependents are short £89,800 in life insurance coverage, according to Hargreaves Lansdown figures.
For homeowners with children, this gap is even bigger, averaging £194,200. Renters without children have a smaller gap, of around £3,400.
Sarah Coles, Hargreaves Lansdown's head of personal finance, explained: 'The gap is bigger for homeowners, who need insurance to cover the cost of paying off the mortgage, so those they leave behind don’t have to worry about this massive monthly bill.
'It’s also bigger for parents, who don’t always have the cover they need to manage the cost of caring for their children until they reach adulthood.'
However, according to the report, 2.4 million households may easily afford to close this gap without breaking the bank.
Find out more:*Policy must be in place for 90 days before gift card can be issued. T&Cs apply.How much could it cost to close the gap?
According to Hargreaves Lansdown's calculations, it costs around £134 per year to close the average life insurance gap.
Homeowners with children would need about £321 per year, while renters without children would need only £5 per year.
Coles revealed: 'The good news is that for 2.4 million households, closing the protection gap doesn’t have to involve somehow finding this cash from thin air. They’re not behind on debt repayments or bills, and have enough cash left over at the end of the month to buy this insurance and still have the wiggle room they need to be resilient.
'The bad news is that this group is dominated by higher earners – with 78% in the top two-fifths of all earners. By contrast, there are none in the bottom two-fifths of earners who can close the gap and still save. It means they need to make much more difficult sacrifices to protect their family.'
Find out more:How much life insurance cover should you get?
Deciding on the right amount of life insurance is all about understanding your financial situation and the needs of your family.
Here are four steps to help you find the right amount of cover:
Know your family's needs:Replace your income:Tailor to specific debts:Review regularly:Find out more:Do you need life insurance for a mortgage?
You don't have to get life insurance when applying for a mortgage.
However, it's a smart move to have life insurance sorted out before finalising your mortgage deal.
Having life insurance in place ensures that your loved ones can keep the home if something happens to you, as they won't be burdened with mortgage payments they can't afford.
Mortgage providers may offer you life insurance, but arranging your own policy beforehand allows you to find the best coverage and rates tailored to your needs rather than relying solely on what your mortgage provider offers.
Find out more:Which? Limited is registered in England and Wales to 2 Marylebone Road, London NW1 4DF, company number 00677665 and is an Introducer Appointed Representative of the following: 1. Inspop.com Ltd for the introduction of non-investment motor, home, travel, pet, van and temporary insurance products (FRN 610689). Inspop.com Ltd is authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635) and is registered in England and Wales to Greyfriars House, Greyfriars Road, Cardiff, South Wales, CF10 3AL, company number 03857130. Confused.com is a trading name of Inspop.com Ltd. 2. LifeSearch Partners Limited (FRN 656479), for the introduction of Pure Protection Contracts, who are authorised and regulated by the FCA to provide advice and arrange Pure Protection Contracts. LifeSearch Partners Ltd is registered in England and Wales to 3000a Parkway, Whiteley, Hampshire, PO15 7FX, company number 03412386. 3.Which? is an Introducer Appointer Representative of Optimise Media Limited (FRN 313408), for the introduction of HSBC Group, which is authorised and regulated by the Financial Conduct Authority to provide credit brokering activity. Optimise Media is registered in England and Wales to Exchange Street Buildings, 35-37 Exchange Street, Norwich, England, NR2 1DP and company number 04455319. We do not make, nor do we seek to make, any recommendations on financial products or services that are regulated by the FCA, as we’re not regulated or authorised by the FCA to advise you in this way. In some cases, however, we have included links to regulated brands or providers with whom we have a commercial relationship and if you choose to, you can buy a product from our commercial partners. If you go ahead and buy a product using our link, we will receive a commission to help fund our not-for-profit mission and our campaigns work as a champion for the UK consumer.
source https://www.which.co.uk/news/article/do-you-have-enough-life-insurance-cover-awAD49d13sxM