How much life insurance do I actually need?

Most people are given a rule of thumb — some multiple of income — and told to get on with it. A multiple is a starting point, not an answer. It does not know whether you have a mortgage, whether your partner earns, whether one of your children will need support for life, or whether you already have coverage through work. The better approach takes about twenty minutes and uses your own figures.

Start with what the money has to do

Life insurance is not a prize. It is a pot of money that has to do specific jobs after you are gone. Write the jobs down first, then price them. Almost everyone lands on some mix of the following.

• Replace the income your household would lose, for as many years as it would be missed.
• Clear or cover the debts that would otherwise sit on someone else — a mortgage, a car loan, a personal guarantee on a business loan.
• Pay for the things that happen immediately: funeral and burial or cremation costs, final medical bills, travel for family.
• Fund commitments you have already made in your head, such as helping with education or supporting a parent.
• Leave a cash cushion so the people at home are not forced to make big decisions in the first year.

Then subtract what already exists

The number you need to buy is not the total above. It is the total minus what your family would already have. Savings, existing individual policies, coverage through an employer, and any survivor benefits your household qualifies for all reduce the gap. Be honest about the quality of each one. Coverage through work usually ends when the job does, and savings earmarked for retirement are not really available for a mortgage payoff.

Income replacement, without the arithmetic trap

The most common mistake is to multiply a salary by the number of years until retirement and stop there. Two adjustments matter. First, the household loses one person’s spending as well as their income, so the shortfall is smaller than the gross salary. Second, a lump sum that sits in an account earns something and is eaten by inflation at the same time, and nobody knows those two rates in advance. Rather than pretend to know, pick a number of years you want covered with confidence, and treat that as the requirement.

The other half of income replacement is the work that does not show up on a payslip. If one adult is at home, replacing childcare, driving and household management is a real cost. Price it the way you would price hiring it.

How long, not just how much

A coverage amount is only half the decision. The other half is the length of time it needs to last. If the money is there to get children to independence and the mortgage to zero, the need has an end date and you can plan around it. If it is there to cover a lifelong obligation — a dependent with special needs, a business buy-out, final expenses — the need does not end, and coverage that expires will not do the job.

What can go wrong with the number

Buying too little is the common failure, and it usually happens because the monthly premium was the only thing being optimised. Buying more than the household can comfortably afford is the less-discussed failure, because a policy that lapses in year four protects nobody. If the amount you need is more than you can pay for today, it is usually better to cover the largest share you can sustain and revisit it, than to buy a smaller permanent policy that leaves a large gap.

A calculator, including ours, is a way of organising your own figures. It is not an application, a quote or an underwriting decision, and it does not know anything about your health. Treat the output as the opening line of a conversation.