How much life insurance do you need? Four ways to size it
8 min read · Updated 2026-10-11 · MoneyCalc
Life insurance is bought to replace income and clear obligations if you die, so the right amount is a function of what you owe, what your household would lose, and what they would still need. There is no single correct figure, but there are four standard ways to get close — and they usually agree within a sensible range.
The income-replacement method
The simplest approach multiplies your annual income by a factor, typically 10 to 15 times. On a $60,000 salary that suggests $600,000 to $900,000 of cover. It is quick and conservative, and it scales with lifestyle.
Its weakness is that it ignores your actual obligations. A high earner with no dependants and no mortgage may need far less; a modest earner with a large mortgage and three children may need more.
The expense method
Add up what your household actually spends per year and multiply by the number of years your dependants would need support — often until the youngest child is independent, or until a surviving partner reaches retirement. Then add one-off costs such as funeral expenses and paying off the mortgage.
This is more work but far more accurate, because it is built from your life rather than a rule of thumb. It also naturally produces different answers for different families on the same income.
The DIME method
DIME is a shorthand that captures the main obligations: Debt, Income, Mortgage and Education. Add all debts, add the outstanding mortgage, add ten times your income for income replacement, add an estimate for future education costs, and the total is your cover target.
It is a good middle ground: more thorough than a simple income multiple, less laborious than a full expense model, and it explicitly includes the large obligations people tend to forget.
Subtract what already exists
Whatever method you use, subtract the resources your household would already have: existing savings, investments, any employer group cover, and the survivor benefits from a state pension scheme. The gap between the obligation and the existing resources is the amount to insure.
Avoid double-counting. Some people count a group policy, a personal policy and savings as if all three existed independently, and end up insured for far more than the gap they are trying to close.
- Debt — all non-mortgage obligations
- Income — enough to replace earnings for the years needed
- Mortgage — outstanding balance
- Education — estimated future cost per child
Term vs permanent
Most people buying cover to protect a family during working years want term insurance: it is far cheaper per dollar of cover and is designed for a fixed period. Permanent insurance bundles a savings or investment element and costs several times more for the same death benefit.
The rule of thumb that serves most households is to buy a large amount of cheap term cover rather than a small amount of expensive permanent cover, and to invest the difference separately where you can see the returns clearly.
Run your own numbers
Free calculators that answer the “how much” version of this question. They run entirely in your browser — nothing you type is uploaded or stored.
Common questions
Does a stay-at-home parent need cover?
Yes. Replacing childcare, cooking, cleaning and household management costs real money. Size the policy on the cost of those services, not on earned income.
How long should the term be?
Until your largest obligations are gone — commonly until the youngest child finishes education and the mortgage is paid down, often 20 to 30 years.
MoneyCalc provides general information only and is not financial, investment, tax or legal advice. Figures are illustrative and depend on your own circumstances. See our full disclaimer.