Finding the right figure
Buying life insurance is a huge step towards getting essential financial protection for your family and loved ones. But how much cover should you get?
"Buying life insurance is a huge step towards getting essential financial protection for your family and loved ones."
This is a crucial decision for a couple of reasons. First, you need enough protection to clear your outstanding debts, such as your mortgage, and to provide for your family’s immediate and ongoing financial needs.
Secondly, the more protection you buy – known as the policy’s ‘sum insured’ – the bigger the premium will be.
People can often over or underestimate what they need, and while you should always have enough, you definitely don’t want too much.
Our calculator helps you work out how much life insurance you need, taking into account your mortgage and other debts alongside existing life cover and any death-in-service benefits you may have through work.
Life Insurance Cover
Our new life insurance calculator will help you work out just how much insurance you need, taking into account your current mortgage, debts, any life insurance and death-in-service benefits.
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The amount you still owe on your mortgage is the number you're after. Take a look at your most recent mortgage statement to find out what the outstanding balance is.
Think about how much each child might need per year to make sure they're looked after until they are independent. This could be when they are 18 or later if they go to university. You could include university fees in this figure.
Think about anything else that would need to be dealt with if you died. This could include funeral expenses or other unforeseen financial commitments.
How much do you owe on other debts?
Think about the total amount of any loans you have taken out, for example if you have more than one loan, then provide the combined settlement figure.
Think about the total amount owed on credit cards, for example if you have more than one card, you'll need to provide the combined balance owing.
Think about any other repayments that come out of your account each month that are not loans or credit cards. Repayments like store card balances, car loans and items bought on hire purchase, for example.
How much other life cover do you have?
If you have other life cover in place, you could reduce how much life insurance you need. We will then subtract this from the total.
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Oops! Your current cover is more than enough to cover these payouts.
Based on your numbers, you should look for a life insurance policy of at least
How to work out the amount of life insurance cover you need
There are six key considerations when working out how much cover you need. Once you’ve totted up the amount for each, you’ll have an estimate of how much the ‘sum insured’ for your policy should be.
Here’s what you’ll need to calculate:
1. If you have a mortgage, how much do you still owe?
If you’re buying your home, you need enough life insurance to clear the mortgage. Take a look at your most recent mortgage statement to find out the outstanding balance.
2. If you’re renting, take account of future payments
If you’re renting your home, think about how the rent will be paid if you’re not around. You should also think about the rent due over the period of time you expect your family to live at the address, budgeting for rent increases.
3. How much do you owe in other debts?
Think about what you owe on personal loans or credit or store cards. You might have outstanding card balances, a car loan and items on hire purchase, for example. Your policy should be sufficient to wipe these slates clean.
4. How much do you need to leave to support your children?
Think about how much each child might need to make sure they're looked after until they are financially independent. This could include childcare costs, clothes and other expenses, such as holidays and perhaps university fees.
5. How much would you like to leave as a lump sum?
Think about anything else that would need to be dealt with if you died. This could include funeral expenses or other financial commitments. You would also need to leave a cash sum for your dependents to use for everyday living expenses, well into the future.
6. How much other life cover do you have?
If you have other life cover in place, you can cut down how much life insurance you need. Your employer may offer 'death in service' cover which pays out if you die. This particular sum insured is often set at four times your annual salary.
You should remove this figure from your running total, then you’ll arrive at an estimate for the amount of cover you might need.
You’ll still need to work out how long you need protection for – for many people, that’s the remaining duration of their mortgage, or until their children are no longer likely to be financially dependent.
Life insurance advice
At MoneySuperMarket, we understand that taking out life insurance plays an important role in the financial future of your family.
We have partnered with leading broker, Life Search, which has a dedicated MoneySuperMarket team you can call on 0800 170 1963 for any queries or support you need when making an application for cover.
We also have a range of useful guides, ranging from money-saving tips to explanations on the different types of life insurance policies to help you tackle any questions you may have when asking for a quote.