How much life insurance do you need?

If you’re taking out life insurance cover, it’s important to make sure your policy provides enough to support your family or loved ones after you’ve gone. However, there’s no need to spend more than necessary on a higher level of cover than you need. Our guide can help you to determine how much life insurance you need, whatever stage you’re at in life.

When applying for a life insurance quote, one of the first questions you will be asked is how much cover you want, i.e. how much you want the beneficiary of your policy to receive when you die. This amount will usually be paid out in a lump sum in the event of your death if this occurs within the policy’s term.

It makes sense that your premium will cost less if you opt for a smaller payout, but you need to think carefully about how much cover you need rather than just going for the cheapest deal — there’s no point under insuring yourself and leaving your family short of money in their time of need.

How much life insurance you need will depend on your circumstances at the time you’re applying. Most people think about taking out life insurance when something big changes in their life — perhaps they have just got married or had their first child, or they are required to take out a life insurance policy when applying for a mortgage. At all of these stages you will have unique needs and should think about how much cover will suit you.

There are several points you need to consider when calculating the amount of cover you need:

Your income If your family depends on your income, you should factor this into your calculation. To keep things simple, you might choose to multiply your income by a number of years to calculate the total sum of your life insurance. Even if you don’t work, think about the impact your death could have on your family. For example, if you’re a stay-at-home parent could your partner afford the additional childcare costs required or would they have to give up work to look after the children?

If you are employed it’s worth checking whether you have a death in service package — this is a benefit where your employer will pay out a multiple of your salary if you pass away while you’re under their employment. Where you do have a death in service benefit you can deduct this amount from your life insurance cover to save money on your premiums.

Your debts One of the main reasons people take out life insurance is to cover their mortgage payments in the event of their death. In fact, many mortgage providers require applicants to take out life insurance as part of the house buying process. Think about how much you owe on your mortgage and any other major debts, and consider this when choosing how much cover you need. If you only want to cover your mortgage payments, you may want to consider decreasing term insurance. This reduces the amount you’re covered for (as well as your premiums) as your mortgage debt goes down.

Your family’s lifestyle Even after the mortgage is paid, you need to think about regular living costs — bills, food, holidays, or rent if you don’t own your property. Think about how the loss of your income and presence would affect your family’s day-to-day life. Even if your partner earns enough to pay the bills and maintain the family’s lifestyle, would they have to consider extra childcare costs or work fewer hours if you were to pass away. You may want to factor this into your calculation.

Your family’s future If you have children it is worth thinking about the support they will need in the coming years, including childcare costs, school fees and university. Even if your children are very young you should think ahead to their financial needs for the duration of the policy — bear in mind that the end of the policy could be many years in the future. You might be thinking about childcare costs now, but if you take out a long policy your children might need support for their student life.

How long do you want to be covered for?

Once you’ve decided how much cover you need, you also need to decide how long you want your policy to last. Some people choose to just cover their mortgage payments if they die, so they choose the same term as their mortgage. Alternatively you may want to think about when your family is likely to be financially independent, for example when your children reach adulthood.

Do you need added extras?

You should also consider whether you want to add critical illness cover to your life insurance policy. This will pay out if you are diagnosed with a defined serious illness — for example if you have cancer, a heart attack or a stroke (the illnesses covered will be laid out in your policy). This can help to protect you and your family financially if you are no longer able to work. Critical illness cover will be more expensive than simple life insurance but can provide very valuable support if you are unfortunate enough to be affected by a serious illness.

Don’t forget to review your policy

If you take out a long term policy, it’s likely your situation will change over this period — you might have children, move home or get married or divorced. It’s important to review your life insurance policy now and then to ensure it’s still relevant and that it will pay out an adequate amount to the right person.

It’s worth taking some time to work out how much life insurance cover you really need — you’re committing to a long term expense and you need to know if you’ve got enough cover to support your loved ones if the worst should happen. It’s also important to keep your monthly premiums down, so don’t pay for cover you don’t need. Once you’ve decided how much cover you need, you can compare life insurance quotes below:

*Based on £150,000 of level-term cover for 25 years for a 30-year-old non-smoking male with no pre-existing medical conditions (March 2023)

The life insurance comparison service is provided by Direct Life & Pension Services Ltd who are authorised and regulated by the Financial Conduct Authority (155312). Registered Office; Friars House, 52A East Street, Chichester, West Sussex PO21 2PJ. By using this system you are also agreeing to our Terms and Conditions and Privacy Policy 

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