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How much life insurance cover do I need?

How much life insurance cover do I need? 

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Written by  Alicia Hempsted
10 min read
Updated: 08 Nov 2022

In this guide, we’ll walk you through the different reasons for needing life insurance and explain how to find the perfect cover for you.

Do I need life insurance?

There are some instances where it may be important to have life insurance, such as when you have dependents that rely on you for their care. In other cases, life insurance can be more of a benefit than a necessity.  If you’re questioning whether you need life insurance, here are a few questions to ask yourself:  

  • Do I have anyone in my life that relies on my income? 

  • Do I have any large debts that may fall onto my loved ones? 

  • Could my loved ones afford my funeral? 

  • Do I want to leave a gift to the people I care about? 

 For more information on whether life insurance is right for you, read our guide ‘Do I need life insurance?’ 

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What are the different types of life insurance? 

There are different types of life insurance for various circumstances. Regardless of or your reasons for needing a policy, there’s bound to one that can cater to your unique needs.  

The first thing to decide when taking out a life insurance is how long you want your policy to last. A term life insurance policy will last for a limited time while a whole of life policy will last for the rest of your life. Both policy types have their own pros and cons for you to consider.  

Term life insurance

Whole of life



Limited time to claim

Guaranteed pay-out

Choose level, decreasing, increasing, or family income benefit

Choose balanced cover or maximum cover

There are also different types of term life insurance for you to choose from that will give you different types of cover. 

  • Level term: Offers an unchanging level of cover and premiums for the entire length of your policy 

  • Decreasing term: Your benefit will decrease over time while your premiums stay the same but start at a lower cost than other life insurance types 

  • Increasing term: Your cover is regularly reviewed and increases over time to match inflation. Premiums also increase 

  • Family income benefit: Policy will pay out a monthly income to your beneficiaries rather than a lump sum. Pay-outs end when the term of your policy ends 

How much life cover do I need? 

The amount of cover you need as well as the type of cover can rely heavily on your circumstances and your budget.

Cover your mortgage 

If you take out mortgage life insurance to cover a repayment mortgage, it would be sensible to set your life insurance benefit to match the value of your mortgage. This will prevent you from over-insuring yourself when your primary reason for taking out insurance is to protect your mortgage. You can also set the term of your policy such that your policy will end when you have finished paying off your mortgage, provided you haven’t deferred any mortgage payments.  

If you have an interest only mortgage and want to cover it with a level term life policy, it’s important that you keep inflation and fluctuating interest rates in mind when calculating how much cover you need. If you set your pay-out to be the same value as your mortgage debt, there is a chance that when your loved ones claim on your policy, the pay-out won’t cover the full amount.   

To find out more about whether you need life insurance for your mortgage, you can read our guide 'Do I need life insurance for my mortgage?'

Cover other loans and debt 

If you have any standing debts or loans when you pass away, the cost of these loans would be taken out of your estate rather than falling on your loved ones. This means that there will be less in your estate to leave to your family and loved ones. 

A life insurance policy is generally not counted as part of your estate and when written in trust can bypass probate, so debts and loans won’t affect it. So, if you’re concerned that your debts might prevent you from leaving something to your loved ones, a life insurance policy might be the way to go. 

To prevent yourself from over insuring yourself, it might be worthwhile to base your life insurance pay-out on your debt. In which case, you will need to know how much they owe in loans and take inflation and the interest rate on these loans into consideration (as well as how that interest may change over time). 

If the type of debt that you want to cover doesn’t have a fixed interest rate, a decreasing term policy may not be the best option because the pay-out will reduce at a consistent rate. This is something to think about carefully when shopping for your policy.

Cover family expenses 

This might be especially relevant to you if you have children who may have trouble affording those big life milestones on their own. For example, your life insurance pay-out can be used to help them cover the cost of attending university, buying a house, or making room for an expanding family. 

When it comes to covering future expenses, it’s important that you take inflation into consideration. The cost of these big milestones will change over time. So, you have the option of selecting a higher amount of cover with a level term policy or buying an index-linked policy, which will retain its value over time. One is the more affordable option while the other has longer-lasting value.

Income replacement 

When it comes to calculating how much cover to take out if you want to support your loved ones, it’s important that you take into account how much help your loved ones might need. A life insurance policy pay-out won’t last forever, but it can help your family cover some expenses until they find their new normal.  

A level term policy will give them a lump-sum for them to freely use to cover big debts or small, or simply help them cover day-to day bills. How long it will last will depend on the amount of cover you take out and how they decide to use it.  

On the other hand, if you want to provide your family with a regular income, you can choose to have your life insurance paid out in the form of a family income benefit. Rather than a lump sum, this policy will pay out a monthly benefit until the end of the policy’s term.

Funeral costs 

The cost of funerals is going up and the rate isn’t likely to slow down any time soon. For that reason, it may be a good idea to leave something behind to help your loved ones cover the cost of a funeral.  

If you want to leave them your life insurance pay-out to put towards your funeral and burial costs, level term insurance is a good option to consider.  This is because it has a pay-out that remains consistent for the whole term of your policy, so you know exactly how much your loved ones will get and can plan your funeral according to your budget. 

If you are concerned with inflation and the increasing cost of funerals, you also have the option of an index linked life insurance policy or a maximum benefit whole of life policy. However, these tend to be more expensive and more complicated.  

Do I need cover for critical illness? 

If your family relies on your income to get by, it may also be worth it to consider adding critical illness cover to your life insurance. A combined life and critical illness insurance policy will pay out if you are diagnosed with a critical illness during the term of your policy.  However, most critical illness insurance policies have specific conditions that they will cover. This means that there may be situations where your health problems may be severe enough to prevent you from working, but not severe enough to entitle you to an early pay-out of your life insurance.  

If this is something that concerns you, income protection is another insurance option that can help. This will supplement part of your income if you are unable to work and is able to cover less severe health problems if they prevent you from working. 

How much cover do I need if I’m over 50? 

When you’re over 50, life insurance gets more expensive, which means that there are some tough decisions to make when shopping for a policy. The first thing to consider is whether or not you need life insurance at this age and whether you can afford the cover you need.  

Most life insurance providers have an upper age limit for life insurance applications, which means that people over a certain age will need to buy from specialist over 50s life insurance providers. These providers are more lenient when it comes to applying for life insurance but also tend to have higher premiums. Because of the increased cost of life insurance at this age, over-insuring yourself can be an expensive mistake, so it’s worthwhile to take your time calculating the right level of cover.

When should I review my life insurance policy? 

Many providers recommend that you review your policy once a year to ensure that it still meets the needs of you and your loved ones. Otherwise, it may be a good time to review your policy after any big life changes that may affect your finances. A few examples of these kinds of changes are:   

  • Adding a child or a grandchild to your family 

  • Buying a new home or refinancing your home 

  • Getting married or getting a divorce 

  • Significant changes to your or a loved one’s health 

  • Retirement or a drastic change in income 

Depending on your provider and policy, you may not always be able to make changes to your life insurance cover if you feel that it’s no longer right for you. However, a review of your policy might also provide you with an opportunity to see what other providers offer and whether you might be able to save money on a policy that’s better fitted for you.

Find great value life cover 

No matter your circumstances or your reasons for buying life insurance, we can help you find a great deal on your policy. With just a few clicks, we’ll fetch quotes from the top UK life insurance providers for policies that suit your needs. It’s fast, free, and easy.

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