How much life insurance do I need?

Enough to clear what you owe, plus enough to replace your income for the years your dependants still need it, less whatever is already in place.

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Working out the amount

  1. 1

    What would have to be cleared

    The mortgage, any loans or credit balances, and funeral costs.

  2. 2

    What income would have to be replaced

    Your take-home contribution to the household, multiplied by the years your dependants would still need it. Until the youngest child is independent is a common marker.

  3. 3

    What is already there

    Death-in-service cover from an employer, existing policies, savings and a partner's income. Subtract it.

  4. 4

    What the rest costs

    The gap is what you insure. The cost of covering it decides whether the term or the amount needs adjusting.

Cover on a non-earning partner

A partner who does not earn still does work the household would have to pay for if they were not there — childcare above all.

Level, decreasing or increasing

Level cover
The amount stays the same throughout. Suits replacing income, or an interest-only mortgage where the debt does not shrink.
Decreasing cover
The amount falls roughly in step with a repayment mortgage. It can be less expensive than level or increasing cover, although the cost depends on the policy, underwriting, term and amount of cover. The reduction follows an interest rate assumed at outset, so if your mortgage rate is much higher the cover can shrink faster than the balance.
Increasing cover
Rises each year by a set percentage or with inflation, protecting what the payout can buy. The premium rises with it.
The term
Usually to the end of the mortgage, or until the youngest child finishes education, whichever is later. Set the cover at a level you can keep paying for the whole term.
Who receives it
Writing the policy in trust means the money normally reaches the person you chose without waiting for probate, and usually outside your estate for inheritance tax.

Protection policies include exclusions, definitions and eligibility requirements. Cover depends on the terms of the policy and on the accuracy of the information given when you apply.

A partner who does not earn still does work the household would have to pay for, childcare above all.

Related questions

Is my employer's death-in-service cover enough?

It may not be, and it ends the day you leave. It typically pays a multiple of salary on death only, with nothing for critical illness and little beyond a few months of company sick pay for long-term sickness.

Do I need life insurance to get a mortgage?

No. UK lenders do not generally require it and a lender cannot insist you buy insurance from them. Buildings insurance is usually a requirement, because it protects the property the loan is secured against.

What does “written in trust” mean?

The policy is held in a trust, outside your estate. The benefit is usually paid to your chosen beneficiaries quickly, without waiting for probate, and normally falls outside your estate for inheritance tax. It generally costs nothing to arrange at outset.

Will a health condition stop me getting cover?

Not necessarily. It may mean a higher premium or a specific exclusion, and insurers differ considerably on the same condition.

What happens if I stop paying?

The cover ends and nothing is returned. These are protection policies, and they have no cash value. Speak to the insurer before cancelling — reducing the amount or shortening the term usually keeps something in place.

Calculators

Life cover calculator

Debts to clear, plus the income that would have to be replaced, less what is already in place.

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Where this fits

We consider a sufficiently broad and diverse range of relevant products and providers across the market, subject to the scope of the service we provide. We compare on the definitions that decide whether a claim pays as well as on the premium, and get the policy written so the money can reach the right person quickly.

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The advisers for this subject

Sunny Bharj

Sunny Bharj

Independent Financial Adviser

Tony Springer

Tony Springer

Independent Financial Adviser

Advising through Equity & General Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority. Check the firm on the FCA register under number 474163.

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