How Much Life Insurance Do I Need?

To work out how much life insurance you need, add up your debts, the income your family would need for as long as they would need it, and any one-off costs. Then take away the savings, existing policies and reliable benefits you already have. What is left is the gap your life insurance needs to fill.

There is no single right number. A rule of thumb like “ten times your salary” can be far too much for one family and nowhere near enough for another. The figure that matters is the one built from your own mortgage, your own income and the people who depend on you. This guide shows you how to build it.

For the different types of cover, see our ultimate UK protection guide.

How do you calculate how much life insurance you need?

Work through four steps. Write the numbers down as you go.

Step 1: Debts that would need clearing

Your mortgage balance. Check your latest statement or mortgage offer.
Loans, car finance and credit cards.
Any money a family member lent you that you would want repaid.

If your mortgage is joint, include the whole balance. Your partner would have to keep paying it all.

Step 2: Income your family would need

This is the step most people leave out, and usually the biggest number.

Start with your monthly take-home pay.
Take away the costs that would stop, such as your commuting and your own spending, and the mortgage payment if step 1 already clears it.
Multiply what is left by 12, then by the number of years your family would need it, for example until your youngest child finishes education.

Step 3: One-off and future costs

Funeral costs.
Childcare so your partner could keep working.
Education, such as university support.
A buffer for the first year, when everything changes at once.

Step 4: What you already have

Take away anything that would reliably pay out:

Savings and investments your family could use.
Existing life insurance, including any taken with your mortgage.
Death in service from your employer. Treat this with care, because it usually ends if you leave your job.
Pension death benefits, if you know what they would pay.

The figure left after step 4 is your rough cover need.

FREE COVER CALCULATOR

How much life cover might your family need?

Add up what would need paying if you died. Leave anything that does not apply at zero. This is a rough starting point, not advice.

Rough cover estimate

£0 Fill in the boxes above to see your estimate. Talk this figure through with an adviser →

A worked example

Illustration only

Alex is 36, with a partner and two children aged 3 and 6. The repayment mortgage is £190,000 and there is £8,000 of car finance. Alex takes home £2,800 a month. Without Alex, the family would need about £1,600 a month more than the partner earns, once the mortgage is cleared, until the youngest is 21. That is 18 years.

Debts: £190,000 + £8,000 = £198,000. Income: £1,600 × 12 × 18 = £345,600. One-off costs, including a funeral and a first-year buffer: £15,000. Total need: £558,600. Alex has £10,000 of savings and death in service of four times salary through work, but plans to change jobs, so Alex leaves death in service out. Cover gap: £548,600.

Rather than one £550,000 level policy, Alex could cover the £198,000 of debt with decreasing term and the income need with family income benefit paying £1,600 a month for 18 years. That often costs less for the same protection. These figures are made up to show how the method works and are not based on any real client.

Real case: mortgage cover plus a year’s income for illness

A client came to us wanting to protect his mortgage. We worked through what his household would need, rather than picking a round number. He took a decreasing term life insurance policy to clear the mortgage if he died. He also took £40,000 of critical illness cover, which is roughly a year of his income, to keep things going if he was seriously ill and could not work. Sizing each policy to a specific need kept the total within his budget. He also wrote the policies in trust. If he is diagnosed with a critical illness, the payout comes to him. If he dies, the money goes to his partner through the trust, without waiting for probate.

Lump sum or monthly income?

The income part of your need does not have to be paid as one lump sum.

	Lump sum	Monthly income
Policy type	Level term or decreasing term	Family income benefit
How it pays	One payment	A tax-free monthly sum until the end of the term
Best for	Clearing debts, flexibility	Replacing a salary
Cost for the same protection	Often higher	Often lower
Risk	The money has to be managed and invested	Easier to budget, and it reduces as the term runs

Many families use both: a lump sum to clear the mortgage and debts, and a monthly income to replace the salary.

Want us to work out your figure with you?

Book a free review →

Are multiples of salary a good guide?

Rules like “10 times your salary” are quick but rough. They ignore:

how big your mortgage is compared with your income
how old your children are, and so how long they will need support
what your partner earns
cover you already have.

A 50-year-old with a small mortgage and grown-up children might need very little. A 32-year-old with a new baby and a large mortgage might need far more than ten times salary. Use the four steps instead.

How long should the cover last?

The amount and the term go together. Set the term first: when would your family stop needing the money? Usually that is the later of:

the end of your mortgage, and
when your youngest child becomes financially independent.

If the premium for that term and amount is more than you want to pay, it is usually better to trim the amount than to cut the term short. A policy that ends too early protects nobody in the years that matter most.

Does inflation matter?

Yes, on a long policy. A fixed £300,000 will buy less in 20 years than it does today. You can choose increasing or index-linked cover that rises each year, with premiums rising too, or build some headroom into the amount you choose.

Family income benefit can also be index linked, so the monthly payment keeps pace with prices.

Will a big payout create an inheritance tax bill?

It can, if the policy is not written in trust. The payout would be added to your estate. The inheritance tax nil-rate band is £325,000 and the residence nil-rate band is £175,000, both frozen until 5 April 2030, and the standard rate is 40% above the threshold (GOV.UK). Writing the policy in trust normally keeps the payout outside your estate and gets the money to your family faster. See our guide to life insurance in trust.

Common mistakes when choosing an amount

Covering only the mortgage. Your family would still need to live.
Counting death in service as permanent. It usually ends when you leave the job.
Forgetting the stay-at-home parent. Replacing childcare and running the home costs real money.
Ignoring existing cover, and paying twice for the same need.
Never reviewing it. A new baby, a bigger mortgage or a pay rise changes the figure.

When should you review your cover?

Check your cover whenever something big changes:

you move home or remortgage and borrow more
you have a baby
you marry, separate or divorce
your income changes a lot
you change job and lose or gain death in service.

How Option Finance helps

We will:

work through the four steps with you, using your real figures
show you lump sum and monthly income options side by side
compare policies from a range of UK insurers
set up a trust where it suits you
review the cover whenever your mortgage or family changes.

How we are paid. There is no fee for our protection advice. We are paid by commission from the insurer you choose. If we are arranging your mortgage, protection advice is included at no extra cost.

Frequently asked questions

Is 10 times my salary enough life insurance?

It might be, but it is a rough guide. Work out your debts, your family’s income need and what you already have, because the right figure depends on your mortgage and your children’s ages.

Should life insurance cover my whole mortgage?

For most people, yes, as a minimum. Then consider whether your family would also need income for living costs.

Do stay-at-home parents need life insurance?

Usually, yes. If they died, the family would need to pay for childcare and help at home, which can cost a lot.

Does death in service count towards my life insurance?

It can help, but it is usually tied to your current job and ends if you leave. Most people treat it as a bonus, not as their main cover.

Can I have more than one life insurance policy?

Yes. Many families combine a decreasing policy for the mortgage with family income benefit for living costs.

Can I increase my cover later?

Some policies let you increase cover after life events such as a new baby or a bigger mortgage, without new medical questions, within set limits. Otherwise you would need a new policy.

How much life insurance do I need if I have no children?

Usually enough to clear shared debts, especially the mortgage, so your partner is not left with payments on one income.

Speak to Option Finance

Tell us about your mortgage, your income and your family. We will work out a figure together and show you the most affordable way to cover it, with no obligation to go ahead.

Book a free initial consultation using the enquiry form below. See also our mortgage life insurance guide, family income benefit guide and ultimate UK protection guide.

How Much Life Insurance Do I Need? A UK Guide