How much life insurance should i have?
Life insurance isn’t something most of us like to think about, but it’s an incredibly important safety net. It’s not usually something you’ll benefit from directly; it’s there to protect the people you love most if the unexpected happens.
There are several types of life insurance available, which we’ll explore in this blog but before we dive into the details, let’s answer one of the most common questions: how much life cover should you actually have? Here’s what you need to know
Start with the Big Picture
Life insurance is designed to replace your financial contribution to your family or dependants. That could mean:
- Covering the mortgage or rent
- Paying off loans or credit cards
- Providing income replacement for your family
- Covering childcare or education costs
- Allowing your partner time to adjust without financial pressure
Essentially you want to think about a payout that is enough to keep your loved ones comfortable and remove money as a source of stress during a difficult time.
Rule of Thumb
A common starting point is to base the amount of cover on a multiple of your annual income. So if you earn £40,000 a year, you might look for a sum assured of 10 – 12 times (between £400,000 and £480,000). This is of course, an initial guide, and the right amount depends on your personal circumstances.
Debts and Commitments
It’s critical you work out your debts and long term commitments. Ask yourself:
- How much is left on your mortgage?
- Do you have loans or credit cards that would need paying off?
- How long will your children be financially dependent on you?
- Is your spouse or partner financially dependent on you?
You may want a policy that covers the full amount of your mortgage, and provides a guaranteed income for your family for a period of time.
Example
1. Mortgage: £200,000
2. Other debts, including loans: £10,000
3. Family income support: £30,000 per year for 10 years (£300,000)
4. Education fund: £30,000
Total cover needed: £540,000
Taking out one policy to cover all your needs may not be suitable and often multiple policies to cover each individual need is more appropriate. For example: Moving home can result in a larger mortgage, an extended term and/or a further advance for renovations. This may leave you with a shortfall in your life cover if you have one combined policy.
Don’t Forget About Everyday Living Costs
Although it’s often easier to focus on debts and financial commitments, it’s equally important to consider your family’s current lifestyle and how much you value maintaining it. Your life insurance should aim to replace the comfort and security your income provides, not just cover the bare minimum.
For example, would your cover allow your family to continue taking holidays, enjoying hobbies, going out for meals or treats?
Review and Adjust Life Cover
Your needs are likely to change over time. Buying a home, getting married, having dependants, or even changing jobs can all affect how much cover you need. That’s why it’s a good idea to review your policy every few years or whenever you experience a significant life change. If your cover doesn’t grow with you, it may quickly become outdated and insufficient to meet your loved ones’ needs.
What are the different types of life insurance available?
There are many different types of life insurance products available. Here, we provide an overview of the most common ones, which can help you understand your options and decide which might be best suited to your needs.
1. Term Life Insurance: This type of policy covers a fixed term, such as 10, 20, or 30 years, and only pays out if the policyholder passes away during that term. It’s usually the most affordable option and is particularly suited for protecting a mortgage or loan. It can also provide income replacement while your children are still dependent.
There are several different variants available, including:
- Level Term: Payout stays the same throughout the term
- Decreasing Term: Payout reduces over time (often used for mortgages)
- Increasing Term: Payout rises with inflation
2. Whole life insurance: This type of policy covers your entire lifetime and pays out whenever you pass away. Unsurprisingly, the premiums are higher, but it guarantees a payout no matter when that happens. It’s generally best if you want to leave an inheritance or use it as part of your estate planning.
3. Family Income benefit: This type of policy provides a regular income to your family instead of a one-off lump sum. The duration depends on the policy term, with longer terms typically having higher premiums. It’s ideal for replacing your income for dependents and ensuring ongoing household stability.
4. Over 50s Life Insurance: This type of policy is designed for people aged 50 and over, with most providers offering cover up to 75 or 80. It’s often used to help cover funeral costs or to leave a small legacy for family. Some providers may cap payments at a certain age or after a set number of years, while others allow the cover to continue for life.
5. Joint Life Insurance: This type of policy covers two people on the same policy but only pays out once. It’s often called first death or first-to-die life insurance. For example, if the policy is in place when your partner passes away, the payout is made, and the policy ends, meaning the surviving partner is no longer covered. This policy is particularly suited for married couples or long-term partners, especially those with financial commitments or limited budgets, where one partner relies on the other’s income to maintain their lifestyle.
Tools to help you choose what’s best for you
There are many online tools and calculators that can help you decide which type of insurance is most appropriate for your needs and provide guidance on the right policy payout. For example, Quilter offers a comprehensive scenario-based questionnaire that serves as a helpful guide. Astute Financial Planning are responsible for the accuracy of the information contained within the linked site.
Why You Should Consider Placing Your Life Insurance in a Trust
When most people take out life insurance, they focus on how much cover they need which is important but often overlook a simple step that can make a huge difference: putting the policy in a Trust.
A Trust means your life insurance payout will be ring fenced into the Trust rather than paying out to your estate. In the event of a claim, if the policy is not held in trust, it is likely that you will have to go through probate before any pay out can be made. This can mean waiting for months before the funds are paid to your love ones. Having it in a Trust means they can access it straight away, when they need it most, to cover things like bills, mortgages, or funeral costs.
It can also help protect the payout from Inheritance Tax. Without a Trust, the money would count towards your estate and, depending on the size, could lead to a tax bill for your loved ones. By putting the policy in a Trust, you help make sure they get the money you intended, no surprises, no delays.
Setting up a Trust is straightforward and can be done at no additional cost with many insurers. It’s one of those small steps that can make a big difference in giving your family security when it really matters.
Get expert personalised advice
Everyone’s life and finances are different, so the right amount of life insurance will vary from person to person. It depends on things like your income, your lifestyle, and what you’re planning for the future. Online tolls are a good starting point however an advisor or financial planner can help you figure out exactly what you need. They can:
- Work out the right level of cover for your situation
- Help you choose the policy type that makes the most sense, whether that’s term, whole of life, or family income benefit
- Make sure your premiums are manageable and fit comfortably within your budget
Take Out
Life insurance isn’t something you guess at, it’s about being prepared. Spending a little time now to figure out the right amount of cover can give your family real peace of mind, whatever challenges may arise.
If you’re unsure about how much cover you need, I am here to talk you through your options and make sure you get the protection that fits your current circumstances.
Disclaimers:
Approver Quilter Financial Services Limited November 2025
The value of investments and the income they produce can fall as well as rise. You may get
back less than you invested.
Trusts are not regulated by the Financial Conduct Authority.
Sources: Quilter
Astute Financial Planning are responsible for the accuracy of the information contained within the linked site.
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