Life insurance calculator – complete guide to ‘How much life cover do I need?’
If you’re thinking about taking out or reviewing your life cover then you’re naturally going to want to know ‘How much life insurance do I need?’. This is one of the most common questions that consumers ask about life insurance when they’re thinking about how much cover they need and cost.
We’ve created our very own iam|INSURED Life Insurance Calculator to give you some help and guidance for this critical element. In this section, our experts will also explain how to calculate the amount of life cover you might need to protect your family and several things to think about.
Most life insurance calculators will try to push you towards an ideal figure which is often ‘too high’ or ‘too expensive’. It’s difficult to give an exact figure that takes everything into account, such as your health and your budget.
60-Second Summary – iam|INSURED Life Insurance Calculator
Our Life Insurance calculator shows you some of the things that you might want to think about and a guide for how much cover you might need to protect your family. There are lots of life insurance calculators and different ways to think about what amount of life insurance is best.
Ultimately, we’ll show you the things that you should think about and then explain why those things are important.
- Life insurance calculators are designed to be a guide and to show you the how to protect your family and your home.
- Most of the main life insurance calculators use a similar formula but there’s no specific rules, so results might be slightly different.
- It’s definitely worth checking several different life insurance calculators and ideally you should get proper advice from a life insurance expert.
- Life insurance calculators are only to be used as a guide and they don’t take in to account your health, financial circumstances and your budget.
How much life insurance do I need?
Life insurance can be used for a wide range of purposes, but ultimately it is to protect your family or your financial dependents if you die. This means that the amount of cover you need depends on your attitude to risk and your own individual circumstances.
Our life insurance calculator is designed to give you a guide and suggest a figure for how much life cover you need. This figure will take in to account a number of key factors and combine them to display the amount of life insurance that might work for you.
iam|INSURED life insurance calculator
- Mortgage: Outstanding balance (not just the original mortgage amount)
- Average debts: How much debt do you typically have? (including loans, credit cards, store cards, car finance, secured loans etc.)
- Children and financial dependents: How many children/dependents and their ages
- Funeral expenses: Would you like to include funeral expenses or cover this separately?
- Existing cover: Any existing policies that you will continue to pay and keep
- Savings, property or investments: Do you have any other assets to include?
These are some of the main elements that might impact you when thinking about ‘How much life insurance do I need?’. Some other potential influences might include any inheritance or financial support from parents or other family members.
Note: There are loads of ‘life insurance calculators’ and most of them use a similar format to calculate the amount of life insurance that you need. You should be careful that you don’t use them as an exact science because nobody can really tell you what you need in a calculator for something as important as life insurance, nor can they say what you can afford.
What is the formula to calculate life insurance?
Martin Lewis recommends that you start with a simple life insurance formula which is 10 x your annual salary. This is a very basic formula to calculate your life insurance needs, but it is quite useful to get you started with a basic figure.
There are lots of other things to consider if you wanted to be more detailed and more precise with your calculations. The best formula to calculate your life insurance in our opinion is to start with:
- Mortgage balance OR Rent payments (up to a child’s 21st birthday)
- Annual salary (Joint or Single) x 10 years
- Legacy goals (desired amount to leave children)
- Funeral expenses (unless covered separately)
There’s no specific formula to calculate life insurance, but there are potential rules that you can apply to help to guide you. Ultimately, it boils down to your own attitude to risk and most importantly, how much you can afford to spend.
How much life insurance do I need?
It’s important to ask yourself ‘what would my family need if I die?’ which is a very difficult question for any parent. You should start with thinking about what it would mean for your household income and your outgoings if you weren’t around.
If you have younger children to protect then you might want to think about what they would need to get to a non-financially dependent age (e.g. 18 years to 25 years). You might also be taking out life insurance to protect a partner or for a financially dependent parent, so it can be different for certain people.
Ultimately, you should think about what you might want to leave to make sure that your family does not suffer financially in the event of your death. You should also include your budget or affordability in the calculation as not everyone can afford the ideal amount of life insurance.
What is life insurance for?
A life insurance policy pays out a lump sum if you die during the term of the cover to support your family or any financial dependents you have. Life insurance can be used for many reasons and the most common types of life insurance policy are:
- Mortgage Life Insurance (Decreasing term life insurance): Pay off some or all of your mortgage to protect your home and other property.
- Family Life Insurance (Level term life insurance): Provides a lump sum to protect and support your family financially if you die during the term of the policy.
- Whole of Life Insurance: Pays out a lump sum to your family when you die (guaranteed pay out) for Inheritance Tax liability, funeral expenses and other costs.
- Family Income Benefit: Pays out a monthly or annual income to your family if you die to replace your salary and other lost household income.
You could also choose to buy either single or joint life insurance based on your own personal circumstances and what feels right for your family. The main thing is to think about what life insurance will cover and how much peace of mind it can offer.
Each of these life insurance products pays out a lump sum or an income on death and each of them will cost a different amount based on how much cover they provide. You should make sure that your chosen policy is the right one for you and your family.
Can I cancel life insurance?
Life insurance is extremely flexible in this sense and can usually be cancelled at any point without a penalty or charge. You should always carefully consider your options when thinking about cancelling any life insurance policy because your cover will cease and your family will no longer be protected.
What are the top 5 reasons for cancelling life insurance?
- Unaffordable (can no longer afford monthly premiums)
- Separation (divorce or separation)
- Decided against it (don’t think it’s important any more)
- Alternative cover (switching to another insurance provider)
- Change in circumstances (children left home or a new mortgage)
Based on our many years of experience in helping customers with their life cover, these are some of the top reasons for people cancelling their cover.
Note: If you are thinking about cancelling your life insurance then you should speak to your adviser or contact your insurance provider for guidance first. If there are any additional rules around cancelling your policy, they will be explained in your policy terms and conditions.
What is the average cost of life insurance?
The average cost of life insurance also varies dramatically for each person and every policy because of the number of different elements involved. We’ve calculated that the average cost of life insurance in the UK is £38 per month for £152,000 of cover.
For a full breakdown you can visit our guide to the average cost of life insurance UK.
How much life insurance can I afford?
Another very important factor when thinking about how much life insurance you need is how much life insurance can I afford. Everyone’s financial situation is different and it’s very easy to say how much life cover you should have, but can you afford that amount in the real world.
Ultimately, you want to get the right amount of life insurance to protect your children and your family but the cost needs to be affordable each month. Worst case scenario is that you take out too much cover that’s unaffordable and you need to cancel it in the future because it’s too expensive.
How are life insurance premiums calculated?
There are several main elements that are factored in to a standard calculation to generate your life insurance premiums, including:
- Age (life insurance premiums increase as you get older)
- Smoker status (smokers pay more for life insurance than non-smokers)
- Amount of cover
- Term of cover (longer term policies cost more)
- Body Mass Index (height and weight can impact premiums e.g. overweight or underweight)
- Health (medical issues can impact your premiums)
- Occupations (high risk occupations can affect your premiums)
- Activities and sports (dangerous sports can also have an effect)
Each person that applies for life insurance will have a different calculation based on their medical history and individual circumstances.
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by Elizabeth Turner-Long - 9th August 2023
Common issues with life insurance calculators UK
We understand that there are lots of life insurance calculators to choose from on the internet and we appreciate that they can be confusing. There are a number of issues with several of the life insurance calculators that we’ve seen so here’s some of the reasons why.
- Too complicated: We’ve seen that there are several life insurance calculators that are too complicated and confusing, so they don’t actually help you to understand how much life insurance you might need.
- Too simple: Alternatively, some life insurance calculators are too simple and they can underestimate the amount of life cover you need without taking everything in to account.
- Death-in-service: Several life insurance calculators include death-in-service policies in the calculations which should not be classed as part of your life insurance provisions. If you leave that job, are made redundant or your employer ceases this benefit, then this payment will be lost.
- Short term debts: Some life insurance calculators also include short-term debts (e.g. credit cards, store cards etc.) which are not a true reflection of your long-term liability.
- Dependents: We find it easier to allocate a lump sum per child that you can use for your calculation that gives you something to work with or towards.
- Other assets or investments: Not many life insurance calculators include other property or investments that you might have that can provide financial security to your family.
Note: We’ve designed our iam|INSURED Life Insurance Calculator to provide you with a guide for the amount of cover you might need and show you the things that you should be thinking about.
Life Insurance provider reviews
What are the best life insurance calculators?
Here are a few other life insurance calculators that we’ve looked at and they can be used to give you a quick guide.
Obviously, we think that our life insurance calculator is the best and we’ve spent a lot of time creating something that works based on our many years of experience. Our team of life insurance experts has over 25 years of knowledge and expertise to give you the best guidance to protect your family.
What to do if you can’t find life insurance
There are certain options and support mechanisms that are available to you if you’re struggling to find life insurance. One of the bodies to support consumers with life insurance is the British Insurance Brokers Association (BIBA) which covers all insurance services in the United Kingdom.
BIBA provides a Find Insurance service that allows you to search for a recommended member who might be able to help you.
Telephone (Insurance Help)- 0370 950 1790
Telephone (General Enquiries) – 0344 7700 266
Email – firstname.lastname@example.org
How can I compare the cost of life insurance?
We’d always recommend that you get proper advice from a life insurance specialist or expert, unless you’re comfortable with how it all works. Most life insurance advice is free and you should end up with the right amount of life cover, plus they should help to save you money.
Our friendly team of life insurance experts is on hand to help to support and guide you to get the best cover, and to save you money.
For help or advice you can contact our team of life insurance specialists on 0800 009 6559 or CLICK HERE.