Most people who buy life insurance pick a round number — £100,000, £250,000, £500,000 — because it sounds like a lot of money, not because they've worked out what their family would actually need. A more reliable approach starts from your own numbers: what you owe, who depends on your income, and how long that dependency will last.
Start with what needs clearing
The first job of life insurance is usually to stop your family losing their home or inheriting your debts. List out:
- Any outstanding mortgage balance
- Personal loans, car finance and credit card balances
- Funeral costs, which can run into several thousand pounds
If your mortgage is already covered by a separate mortgage life insurance or decreasing-term policy, don't double-count it here — but do check the cover actually matches the mortgage term and balance, since the two can drift apart after a remortgage.
Add income replacement for dependants
Debts are only half the picture. If anyone relies on your income — a partner, children, or both — a common method is to work out how many years of income replacement they'd need and multiply accordingly. A simple version: take your net annual income, decide how many years' worth of support you want to provide (often until the youngest child finishes education, or until a partner could reasonably adjust their own working pattern), and multiply the two together, then subtract any savings or other income the household could fall back on.
This is deliberately rougher than a spreadsheet forecast. Life insurance is there to bridge a gap, not to fund a household forever, and most advisers suggest sense-checking the result rather than treating it as exact.
A worked example
| Item | Amount |
|---|---|
| Outstanding mortgage | £180,000 |
| Other debts | £8,000 |
| Funeral costs | £5,000 |
| Income replacement (10 years, net income £28,000) | £280,000 |
| Total suggested cover | £473,000 |
That's before subtracting existing savings, workplace death-in-service benefit (often 2–4 times salary, paid automatically if you die while employed) or an existing pension pot that could pass to a spouse. Once those are deducted, the figure a household actually needs to insure separately is often lower than the headline total.
Term length matters as much as the amount
Cover that runs out too early is a common mistake. If your youngest child is five, a 15-year term ends while they're still a teenager. Match the term to the actual dependency period — the end of a mortgage, or the point children are likely to be financially independent — rather than an arbitrary round number of years.
Common mistakes
- Relying only on a workplace death-in-service benefit, which usually ends the moment you leave that employer
- Buying joint life, first-death cover for a couple with dependent children, when it may only pay out once, leaving the second death uncovered
- Forgetting to review cover after having children, moving house, or a significant pay rise or pay cut
What to do next
Write down your debts, your dependants' likely needs and the term you actually require before getting quotes. Going to an insurer or broker with your own numbers, rather than asking "how much cover should I get?", tends to produce a policy that's sized correctly rather than one sized to fit a monthly budget.