How much life insurance do I need?
Having the right amount of life insurance cover in place gives your family financial security if you pass away. But how do you know how much is enough? This guide walks you through the process of calculating the life insurance you may need.
What’s the right amount of life insurance?
The right amount of life insurance will be different for everyone. For peace of mind that your loved ones will be looked after, while avoiding paying too much for cover, it’s important to consider your own particular circumstances and needs.
It’s best to take a personalised approach to working out what the right amount of cover might look like for you:
- First, set out what you want your life insurance to cover. Like outstanding debts, your mortgage, food, utilities, travel and education costs. Consider things like how many children you have, how old they are and if your spouse or partner works.
- Once you know what you want to cover, and for how long, sit down and calculate how much everything would cost.
- You should also take into account any savings and investments such as ISAs or other life policies you have, like death in service benefit.
- A financial adviser can look at your full financial picture and family circumstances, fine-tune your figures and help you find the right policy and amount of cover.
Life insurance is there to provide a lump sum payout to those left behind if you die. It’s all about having the reassurance that your loved ones will be taken care of financially if you’re not there to look after them. That’s why it’s so important to choose the amount of cover that works for your particular needs – making sure you’re not paying too little or too much.
Most of us have a lot of outgoings. If you have people who are dependent on you to meet those outgoings, you’ll want to make sure they won’t suffer financially if you die. It pays to spend some time working out what the right cover means for you and your family, so they’re not left struggling if the payout isn’t enough. You don’t want to be over-insured, either, as that means you’re spending more money now than you need to.
When you’re deciding how much cover you need, there are all kinds of things to take into account. There’s no one-size-fits-all answer – you’ll want to consider things like your rent or mortgage payments, your future hopes for your children, your daily living costs and any debts that you have.
To work out what the right amount of life insurance looks like for you and your family, you first have to think about why you need it. What do you want it to cover?
There are all sorts of factors that shape your life insurance cover requirement:
- If you have children, how old are they? How would you cover childcare costs, and what are their education costs?
- If you have a partner or spouse, do they work?
- Do you have outstanding debt, or a large mortgage balance, that you’d like to pay off?
- How much are your household’s day-to-day living costs?
These are all questions to answer. Once you’ve worked out what you need life insurance to cover, you can then add up these cost to calculate how much cover is right.
In the UK, the average gross salary for someone working full-time was £37,430 in April 2024, according to the Office for National Statistics. Suddenly losing someone’s salary would leave a huge gap in many households’ budgets.
A quick way of working out how much you need can be to multiply your salary by the number of years your loved ones would need support, or to choose a multiple of 10 times your salary. This can be a handy guide for a ball-park figure, but you can’t rely on it to necessarily meet your needs. To be sure your cover works for your family, and to avoid paying too much in premiums, it’s better to take a more personalised approach.
This approach is likely to give you a more accurate figure of how much life insurance you need, but there’s more to think about. Here are some of the main things to take into account when you’re calculating what the right amount of cover means for you and your family.
Any debts, including the mortgage
Many Brits have debt and, if you’re one of them, you probably want to make sure it can be paid off when you die. A lot of that debt is unsecured, like personal loans, overdrafts and credit cards. The Money Charity reports that the average household has unsecured debt of £8,353 per household, with £2,611 of that on a credit card.
Most people’s biggest debt is their mortgage, with the average outstanding mortgage amount in the UK around £136,510 according to Finder, and the average monthly payment sitting at £1,253. This is a big cost to your family, and you won’t want to leave them vulnerable to losing their home.
Living costs
Based on the average household size of 2.3 people, NimbleFins report that the average household spends £2,707 a month on bills, with most of that going on housing, transport and food. It’s a huge amount to cover just to maintain your family’s lifestyle if one of the main breadwinners isn’t around any longer.
Education and childcare costs
If you have younger children, think about the potential childcare costs and the big impact on your partner of being a single parent with a lower household income. Figures from Coram show that the average cost of 25 hours a week in a nursery for a two-year-old is £151, while the average price of an after-school club is £69 per week.
If your children attend private schools, you wouldn’t want them to have the upheaval of moving at a very difficult time. You’d want to factor these costs into your calculations. Average fees for private schools range from £19,000 for day rates to £50,000 a year for boarding (though there are outliers on either side), according to the Good Schools Guide.
And if your children are likely to go to university in the future, Brewin Dolphin has totted up the total potential cost. It’s around £56,850 in England, Wales or Northern Ireland, or just over £38,800 if they qualify for Student Awards Agency Scotland funding in Scotland.
Future support
Lots of people plan to help out their children with things like house deposits or weddings in the future. According to Halifax the average UK first home is £311,034 with a deposit of around £61,090 and a wedding setting you back £23,250; these things don’t come cheap.
Any other policies, savings or investments
Many people have death in service benefit through their work. You might also have other investments or money in savings accounts or ISAs. Don’t just rely on these assets without making sure they’re enough, but do factor them in when you’re working out how much cover you need.
Funeral costs
The average cost of a funeral in the UK is £4,706, so you may want to make sure your life insurance can cover your send-off.
Inflation
Don’t forget to take inflation into account when you’re working out how much life insurance you need. You’re highly unlikely to get as much for your money in 10 or 20 years’ time.
Length of term
Think about how long you should get life insurance for. For example, if you are considering a term life insurance policy, how many years will it be until your children are financially independent or your mortgage will be paid off?
Tips for calculating your life insurance cover
Rather than relying on vague rule-of-thumb amounts to calculate your cover, here are some ways to make sure your life insurance policy fits your family’s needs:
- Get a financial adviser to go through a full financial plan with you to get a clear, comprehensive picture of your and your family’s finances and circumstances. They’ll help you get the cover you need, while making sure you’re not paying too much.
- Run your details through an online life insurance calculator, like these from Aviva and Legal and General. They can help you understand what to take into account and give you an estimate of what you might need.
- Don’t forget to explore different scenarios when you’re deciding how much cover you need. For example, would your spouse have to reduce their hours to care for the children? Might they need to go from being a stay-at-home parent to working? Is your spouse likely to have caring and/or financial responsibilities later in life for adult children with disabilities or elderly parents? It’s all relevant when you’re calculating what your loved ones would need.
Think about how much you can afford
When you’re taking out life insurance, a big factor to consider is how much you can afford, now and in the future. Remember that it’s not a short-term commitment – you’re likely to be paying the premiums for years to come. So you’ll want to balance getting enough cover to take care of your loved ones, without hurting you financially now.
The cost of cover will depend on all sorts of things, including your age, health, cover amount, length of term and the type of life insurance product you buy.
When it comes to life insurance costs and cover amounts, there are lots of variables to consider, like the type of policy you have, your age and health, as well as your family and your financial circumstances. Your needs will be different from your neighbours’, your colleagues’ and your friends’.
What is a normal amount of life insurance?
myTribe data based on our life insurance customers suggests that the average amount of life cover is £313,000. However, £150,000 is the most common amount that is requested, accounting for almost a third of customers. But remember that everyone’s needs and situations are different, so always work out what’s best for you.
How much does life insurance cost?
The cost of life insurance varies depending on things like your age, your health, whether or not you’re a smoker, the amount of cover you want and how long the term is. Usually, the younger you are, the cheaper your life insurance premium is likely to be.
myTribe research shows that the average monthly premium for level-term life insurance is £5.16 for a 25-year-old non-smoker, rising to £19.45 by age 45 (based on £150,000 for a 25-year term).
What is the average life insurance payout in the UK?
The average payout in the UK was £79,703 in 2024, according to the Association of British Insurers. And it may be reassuring to know that a huge 96.5% of claims were paid out that year.
Life insurance isn’t a one-and-done. Any time you have a life change, it’s a good idea to revisit your life insurance policy and check whether what you have in place still meets your needs.
You probably want to check it out when:
- You have or adopt a child
- Your children become financially independent
- You get married or divorced
- You buy a home, remortgage or move
- You’re estate planning
Some people make a point of reviewing their policy every year to make sure they’re not caught out paying for too much or too little cover.
Disclaimer: This information is general and what is best for you will depend on your personal circumstances. Please speak with a financial adviser or do your own research before making a decision.
Frequently Asked Questions
What happens if I don’t have enough life cover?
If you don’t have enough life cover, it can cause your family financial pressure at the worst of times. They could potentially fall behind on bills, lose the family home or struggle to pay back joint debts. When someone dies, Aviva reports that it’s not uncommon for their loved ones to have to reduce their lifestyle and cut back on things like holidays, school fees and even food.
Getting the right cover in place now gives you the peace of mind that your loved ones will be comfortable financially.
Can I increase my life insurance later?
Yes, you can. Though do bear in mind that the older you are, the more expensive it is to take out cover.
What if I already have life cover through work?
Lots of people have death in service benefit through their work. If you’re not sure, check with your employer and find out how much it covers you for. You should take this into account when you’re working out how much cover you might need, but don’t rely solely on it without calculating whether it would be enough. And remember you will lose this life insurance if you move jobs.
How often should I review my life cover?
It’s wise to review your cover when you go through any significant life change, like having a baby, getting divorced or buying a new home. You’ll want to check that the financial protection you have still suits your situation and the length of time you need it for.
Should I add critical illness cover?
People often take out critical illness cover as an add-on to life insurance cover. This can be a good idea, as it’s designed to pay out if you get diagnosed with certain serious illnesses. Some policies even let you add protection for your children. It’s worth speaking to a financial adviser to make sure you get a policy that suits your needs.