Updated: October 08, 2019

How Much Life Insurance Do I Need?

Unsure how much life insurance cover you need? Read our guide to find out what the best policy for you might look like

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Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: October 08, 2019

If you reach a stage in life where you know you need to get life insurance but aren’t sure how much life insurance you really need and want to know how to determine the cover you should have, then read on.

In this article we’ll be covering:

How much life insurance cover do I need?

The amount of life insurance a person needs will depend on why you want to get life insurance, and if you want to take out a joint policy with another person.

You may need to protect your mortgage debt, though many mortgage lenders make it a requirement that you have adequate life insurance to protect the risk that you might die before you have finished repaying the debt.

You may simply want to make sure your family and loved ones will have financial security and wish to ensure they are able to maintain their standard of living in the event of your death.

The amount of cover you need will depend on your own circumstances, for example, how much you earn, how much debt you need to protect, and your family’s cost of living. As well as how much life insurance you can afford to get, as the monthly premiums will play a role in how much protection you can comfortably afford to have.

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How do I determine the right amount of life insurance?

If you’re thinking about life insurance, there was probably a trigger for the thought in the first place.

Whether you bought a house, got married or had your first child, when you start thinking of getting life insurance for one reason, it’s worth paying some attention to whether there are any other reasons you might want to consider getting cover for.

For example:

  • Covering your mortgage
  • Covering other loans
  • Allow for the cost of childcare
  • Consider education expenses
  • Income replacement
  • Critical illness

Getting the right amount of life cover first time around is a good idea since the older you are, the higher the monthly premiums you’re likely to have to pay. The earlier you apply, the better. So when you’re planning for the future, be sure to look ahead as far as you’re able.

This approach will hopefully ensure you’re close to having the right amount of life insurance coverage for the foreseeable future.

Is there a rule of thumb to work out how much I need?

When it comes to determining the amount of life cover you need to have, the general rule is to calculate your long-term financial obligations and then subtract your assets. The gap is what your life insurance policy will need to fill.

Since it can sometimes be hard to know exactly what you should be included in the above calculation, there are also a few rules you can follow to determine how much life insurance is needed for your own peace of mind:

  • 10 times your salary or less: This rule is a bit rough and ready since it doesn’t look in detail at the needs of your family or take into account any savings or existing life insurance policies you might have in place. This rule of thumb will pay off debt and allow your family time to grieve without the stress of financial concern, but it won’t replace your full income for the rest of their lives.
  • More than 10 times your salary: Again, this only provides you with a rough idea, but with this rule of thumb your beneficiary should be able to use the life insurance payment to replace your income with interest and dividends by investing the money wisely. It is designed to replace income for life.
  • Sliding scale: This rule of thumb works on the principle that some people think you should refine the above suggestions based on your age. Basically, the younger you are, the higher the multiplier you should be applying. For example, if you were in your twenties you’d multiply your salary be 20, but if you were closer to retirement age you’d multiply your salary by only 5.

While this model aims to replace your salary for life, it also makes several assumptions. If you’re pretty young, it assumes your income will increase prior to the end of your insurance term. If you’re close to retirement, it assumes you need less because it expects you’ll have retirement savings and assets and are likely to have paid off your mortgage, or at least be close to doing so.

However you choose to determine how much life insurance cover you should get, the ultimate aim is to make sure there’s enough cash to cover your income in the event of your death.

If you’re single and don’t have any children who will need the money, there’s probably little need to have life insurance, but if you do have a partner and/or dependents, you should consider all the financial implications in the event of your death.

You should always work out what a reasonable rate of return on each investment would be (say 5%), then work out the lump sum that would be needed at that rate of return to generate the lost income each year. Luckily, the advisors we work with can help you with that.

Ideally you’d want to make sure your life cover will last until all your children have finished their education, including university, if that’s on the cards. Alternatively, you could consider family income benefit (FIB), which we’ll go into more detail below.

What is family income benefit?

This is a type of life assurance policy that pays the salary of the deceased every month until the policy ends and, once it does, your cover and any payments will stop.

For example, if you take out a 25-year policy and pass away 10 years into it, your family will receive a regular monthly income for the remaining 15 years.

Bear in mind that there is no cash value with this type of protection, so if you stop making payments then you cover will end.

Speak to an advisor for more information.

How much will it cost to buy the life insurance I need?

Some life insurance policies can be extremely good value and often a few pence a day can be enough to provide financial protection to your family in the event of your death, although the cost is dependent on your state of health and your age when you take out the insurance cover.

Monthly payments (or premiums, as they’re often called) can vary, so it’s a good idea to shop around to get the right cover for the best price.

When considering the amount of cover you’re buying, make sure you check exactly what your life cover is providing for the amount you are being asked to pay each month.

The price you should expect to pay for your life insurance cover will depend on a number of things, including:

  • Your age.
  • Your health.
  • Your lifestyle.
  • Whether you smoke, or have ever smoked.
  • How many years you need your policy to cover.
  • How much you want to cover.

If you smoke or have serious, pre-existing medical conditions, you’ll have to pay more for life insurance. However, if you’ve been nicotine free (this includes e-cigarettes and patches) and already hold life cover, it might be worth investigating if a new policy might be cheaper, so long as you haven’t had any serious medical problems in the meantime.

Generally, the shorter the term you want the cover, the lower the cost, but most people want to make sure cover lasts until all their children have completed full-time education.

Make an enquiry and we’ll match you with an expert advisor who can figure out how much life cover will cost you. The advisors we work with have access to insurance houses across the UK and can help you calculate how much life insurance might cost you.

Speak to an expert advisor

We only work with specialist independent advisors across the UK. We’ll match you with the right expert to help, saving you time, hassle and headaches.

Talking to one of the independent experts we work with costs you nothing and if you take their advice, it still costs you nothing. Advisors are paid a commission only when you get the product you want and need. There’s no obligation to take any advice you might be given.

Call 0808 189 0463 or make a quick enquiry today.

Ask A Quick Question

We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in life insurance. Ask us a question and we'll get the best expert to help.

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

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FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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