Do you have enough life insurance cover?

14 million UK households have at least one dependent, but 57% of homeowners don’t have enough life cover to protect them, according to a recent report by Hargreaves Lansdown. 

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: best life insurance

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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: what is life insurance and how does it work?

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: whole-of-life insurance explained

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:

1. Know your family's needs: start by understanding what your family would need financially if something were to happen to you. Think about things like paying off debts, covering funeral costs, and meeting ongoing expenses such as mortgages and education fees.
2. Replace your income: a good rule of thumb is to aim for coverage that can replace your income for a set number of years. This ensures your family has immediate financial support if you're no longer around. Also, consider any other income sources your family might have.
3. Tailor to specific debts: if you have specific debts, like a mortgage, consider a policy that decreases over time as you pay off the loan. This way, your family won't be left with any outstanding debts if something happens to you.
4. Review regularly: life changes, so make sure to review your life insurance needs regularly. Major life events like getting married, having children or buying a home can change your financial responsibilities, so adjust your coverage accordingly.

Find out more: Over 50s life insurance: is it worth getting?

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.

You could also look at income protection or mortgage protection as an alternative to standard life insurance. 

• Find out more: do you need life insurance for a mortgage?

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1. Inspop.com Ltd for the introduction of non-investment motor, home, travel and pet insurance, who are authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635). 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 (FRN656479), for the introduction of Pure Protection Contracts and Private Health Insurance, who are authorised and regulated by the FCA to provide advice and arrange Pure Protection Contracts and Private Health Insurance Contracts.  LifeSearch Partners Ltd is registered in England and Wales to 3000a Parkway, Whiteley, Hampshire, PO15 7FX, company number 03412386.

3. HUB Financial Solutions, for the introduction of equity release advice, who are authorised and regulated by the Financial Conduct Authority (‘FCA’) to provide advice and guidance on financial products for those who have retired or are approaching retirement (FCA Firm Reference Number: 455713). HUB Financial Solutions is registered in England and Wales to Enterprise House, Bancroft Road, Reigate, Surrey RH12 7RP, company number 05125701.

4. Alan Boswell Insurance Brokers Ltd (FRN 301), for the introduction of non-investment landlord insurances, who are authorised and regulated by the Financial Conduct Authority to provide advice and arrange insurance contracts. Alan Boswell insurance brokers Ltd is registered in England at Prospect House, Rouen Rd, Norwich NR1 1RE, company number 02591252.

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