How Much Life Insurance Do I Really Need? A Step-by-Step Guide
Discover how much life insurance you truly require with this straightforward step-by-step guide. Discover how to calculate coverage based on your income, debts, dependents, and future aspirations.
How Much Life Insurance Do I Really Need? A Step-by-Step Guide
Purchasing life insurance is a good decision — but determining how much protection you require can get complicated. Should you insure just your mortgage? Your entire income? Or consider future education expenses?
At Smart Life Insurance, we do not think that life insurance should be a cookie-cutter process. In this article, we are going to guide you through a simple, step-by-step process for determining the proper amount of protection for your individual circumstances.
Step 1: Work Out Your Income Replacement
Begin by considering:
How many years would your household have to be supported if you were not here?
There’s a general guideline to multiply your salary by 10–15 years.
Illustration:
If you have a salary of £35,000, you could need £350,000–£525,000 of life insurance solely to cover your income.
If you are the sole breadwinner or have very young children, you may want to err on the higher side.
Step 2: Total Up Your Outstanding Loans
Your life insurance policy should pay for significant loans that you would not wish your family to have to settle:
- Mortgage outstanding
- Credit card debt
- Personal or car loan
- Student loans (if not written off on death)
Example:
If the balance outstanding on your mortgage is £200,000 and you have a further £10,000 of other loans, add £210,000 to your coverage requirements.
Step 3: Think About Your Children’s Future
If you have kids, include long-term expenses such as:
- Childcare
- School or university fees
- Everyday living costs
- Support for wedding or house deposit
Approximate cost per child: £50,000–£100,000 (based on targets and location)
Step 4: Add End-of-Life Costs
Remember funeral fees, legal charges, or hospital bills.
In the UK, the UK average funeral currently stands at £4,000–£5,000.
Adding a small amount means your family isn’t left with surprise costs at an already tough time.
Step 5: Deduct Any Current Assets or Support
Do you have savings, investments, or other life insurance already (e.g., through your job)?
If so, subtract them from the total.
Example:
- Total need: £700,000
- Existing savings + employer coverage: £200,000
- Gap = £500,000
That’s how much personal life insurance you probably need.
Quick Summary Formula
Here’s a simplified version of the calculation:
(Income × Years) + Outstanding Debts + Children’s Expenses + Funeral Costs – Existing Savings or Coverage
= Recommended Life Insurance Amount
Bonus: Use Our Smart Coverage Calculator
At Smart Life Insurance, we provide a simple, no-cost life insurance calculator that does this calculation for you. Simply input your income, dependents, and financial data — and receive a customized estimate in minutes.
Final Thoughts
There’s no “ideal” number when it comes to life insurance — but with the proper strategy, you can select a policy that provides your family genuine peace of mind.
Begin by taking into account your financial responsibilities, aspirations, and current support systems. And remember: it’s always safer to be a bit over insured than underinsured.