How much life insurance do you actually need?

Add up what your death would cost the people who depend on you — the income they would lose, the debts they would inherit, and the one-off costs — then subtract what already exists to cover it. That figure is your cover amount. Salary multiples like "ten times your income" are shortcuts that ignore whether you have a mortgage, dependants, savings, or existing cover.

The calculation

Step 1: Income replacement

How much of your income do others actually depend on, and for how many years?

Not your whole salary — the portion that supports other people. If part of your income covers your own living costs, those costs disappear along with you.

Then the years. Until children finish education, until a partner completes a career transition, until a mortgage ends. Multiply the annual figure by the number of years.

Step 2: Debts that would transfer

Joint and co-signed obligations can land on the other person. A shared mortgage is usually the largest. Add the outstanding balance of anything someone else would be left holding.

Debts in your name alone generally do not pass to family, though rules vary by jurisdiction and by how the debt is structured. Worth confirming for your specific situation rather than assuming either way.

Step 3: One-off costs

Funeral expenses, any outstanding medical costs, and a buffer so the people involved are not making financial decisions in the first weeks. Education costs if you intend to fund them.

Step 4: Subtract what already exists

Savings and investments, existing policies, and employer cover. Also your partner's own earning capacity — a household with two incomes needs less replacement than one built on a single income.

Cover needed = (1 + 2 + 3) − 4.

Why salary multiples mislead

Ten times income produces the same answer for a single person renting with no dependants and for someone with three children and a mortgage. Those are not the same situation.

It is useful only as a sanity check. If your calculation lands wildly outside the range a multiple suggests, it is worth re-checking your inputs — not automatically adjusting to the multiple.

Choosing the term length

The term should end when the need ends, which usually means one of these:

• Until the youngest child is independent. Count the years from now.
• Until the mortgage is paid. Match the remaining years.
• Until your partner is financially independent, if that is the driving reason.

Choose the longest of whichever apply. A common expensive mistake is a term that expires while the need continues — at which point you are re-buying cover at an older age and possibly in worse health.

Buying somewhat longer than you think you need is cheaper than the alternative, because premiums rise with age and health is unpredictable.

The employer cover trap

Many people count workplace life insurance as their plan. Two problems with that.

It usually ends when the job does. Change employer or lose the role and the cover goes with it — often at a moment when your finances are already strained.

The amount is frequently modest, commonly a small multiple of salary, which rarely matches a real calculation once a mortgage and children are involved.

Count it, but as a supplement. If it is the only thing standing between your dependants and a shortfall, that shortfall is one resignation away.

What not to include

• Cover for children. Policies on children are sold regularly and rarely make sense — nobody depends on a child's income.
• Inflated education estimates. Use realistic figures rather than worst-case ones.
• A round number for its own sake. Every extra dollar of cover is a premium you pay monthly for decades.

Revisit it when life changes

The right amount is not fixed. It rises with a mortgage or a child, and it falls as debts are repaid and savings grow. Somebody with grown children and a paid-off house often needs far less cover than they did at 35, and sometimes none.

Worth reviewing after any of these: a new child, a mortgage, a marriage or separation, a significant income change, or paying off a major debt.

Common questions

Is ten times your salary the right amount?

A starting point, not an answer. It ignores your actual obligations, savings and existing cover.

Does employer life insurance count?

Only while you hold the job. Treat it as a supplement rather than the plan.

How long should a term policy run?

Until the need ends — usually children becoming independent or a mortgage being paid. Choose the longest applicable.

Can I have more than one policy?

Yes. Some people layer a longer smaller policy with a shorter larger one covering peak-need years, which can cost less than one large long policy.

We are not licensed insurance advisers and this is general information rather than advice on your circumstances. For anything involving business ownership, lifelong dependants or estate planning, speak to a licensed professional.