Life insurance: How much cover

Your cover needs will be set by your debts and dependants

Working out how much cover you need to pay off your debts is the easy bit. If you know how much your debts are – that's how much cover you need. Insure yourself for as near to your target figure as possible

However, working out how much cover you need to protect those you leave behind is a bit more tricky. However, we hope we can make it a little easier.

Follow our step-by-step guide below to work out how much cover you might need.

How much cash should you leave behind?

First, you need to think about how much cash your family might need to cover their immediate requirements if you died.

E.g. there should be enough cash to cover funeral expenses and to pay off any debts like credit or store cards, or personal loans. Your family might also need some money to cover bills and expenses for a couple of months.

Think about how much cash you should leave behind for immediate needs, and then deduct any emergency savings you may have already put by.

How much income will your family need?

Look at your take home pay and whether your mortgage will be paid off on death

If you have an income, you'll need to work out roughly how much cover you should have in order to replace that income should you die.

• First look at your take-home pay, after tax and national insurance has been deducted. Then add to this any additional monthly expenses your family may incur on your death – such as the cost of additional childcare. This is your family's required income.
• Then consider whether your family might be entitled to any bereavement or other state benefits if you died. You can find out more about state benefits paid on bereavement from the Department for Work and Pensions or Directgov websites. Deduct these extra benefits and any other income your family might be entitled to after your death from the 'required income' figure above.
• Then deduct any expenses that would disappear if you died – e.g. if your mortgage will be paid off, you should remove the cost of mortgage repayments. Also remove any amount you deduct for your personal expenses, such as travel to work. This gives the rough amount required by your family each month to replace your income, should you die.

How long will your family need covering for? 

Multiply this figure by 12 to get an annual figure, and then by the number of years you think your family will need the cover for. This might be until the children are fully independent or until your partner reaches retirement age. 

Calculate the base amount

Add the two sums of money you have now calculated together. 

Be realistic about your family's needs

Take into account cover you already have 

Deduct any life cover that would be paid by your employer, or any existing life cover you might have which is not already covering something like your mortgage. This is the rough amount of life cover you need to protect your dependents if you die.

You might get a bit of a shock when you see the final figure. E.g. if you calculate your family might need £3,000 to cover them for immediate needs and £1,000 a month for 20-years – the total amount of cover needed would be £243,000 (£1,000 x 12 x 20 plus £3,000). 

And this is just for family protection. You still need to make sure you have life cover in place to pay off your mortgage if you die. 

If you can't afford to pay for this level of cover, don't panic. The main thing is not to overstretch yourself. Just be realistic and insure yourself for as near to your target figure as is feasible. It's better to have some life cover in place than none. However, remember the younger and fitter you are when you start, the cheaper it will be.

If you're a full time carer

If you don't go out to work and are a full-time carer you still need life cover. You should calculate what the family would have to pay each year to cover your caring responsibilities and put life cover in place for that.

Any lump sum your family receive should be invested carefully in order to beat inflation.