Having a family of your own is truly wonderful, but it comes with obligations and responsibilities. As a spouse and parent, you’ve reached a point where you want to have contingency plans for just about every eventuality - including your own death. That means getting life insurance and with this comes the burning question: “How much life insurance do I need?”

There’s no straightforward amount that applies to everybody. It all depends on your circumstances, so you’ll have to do some thinking before you can arrive at a target to shoot for. Here’s how to determine your ideal life insurance cover amount.

Consider What You Want Life Insurance to Do for Your Family

Before you can calculate what your life cover should be, you need to think about what you’d want it to do. Start with a clean sheet headed “How much life insurance cover do I need” and capture the elements you’d want your life insurance to pay for. These could include several things including:

Income replacement for several years while your family prepares itself to do without the income you used to bring in. How many years should that be? The age of your children could be a guiding factor in determining that.

Paying down a mortgage will eliminate at least one of your spouse’s material worries if you were to pass away. This may or may not be an add-on to the income replacement question we’ve already touched on. That, alone, should help your spouse to keep the family home. Nevertheless, income replacement minus mortgage won’t be as comfortable as an amount for income replacement plus mortgage coverage. There’s also the question of how many years your mortgage will still be a factor. Does it match your income replacement goals?

Other significant debts or expected expenditure form part of your calculations.  Repayment of loans will come out of your assets if you haven’t made provision through insurance. Or, there might be a significant expense lying in wait. For example, if the family car is likely to need replacing in the next few years, factoring that in could be helpful.

University education for your children will help them to get a good start in life. While they might still be some years away from showing interest in a career, settling on an amount that’s earmarked for tuition is the right thing to do.  

Consider Your Current Assets

Now that you have an estimate of the amount of money you would need to keep your family in relative comfort if you were to pass away, you can look at your existing assets to see if you can offset them against the amount you came up with. These might include:

Any life insurance you already have is an obvious offset against the amount you need.

Savings and pension payouts are part of your legacy and could reduce the amount of life cover you need to have.

Other provisions you have already made for your children’s future, for example, special savings accounts, can reduce the amount of money they’ll need for their education.

So far you have a pretty simple equation that will help you to determine how much life insurance you need. But it’s just a snapshot of how things stand at the moment. Things will change. You might pay down your mortgage before the end of your life. Your kids may grow up and complete their studies. Paying higher premiums than you really need to because you calculated your life insurance needs based on the current state of affairs isn’t a mistake for now - but it could be in the future. That leads us to the next thing to think through.

For What Period of Time Would Your Family Need This Cover?

Whole life insurance continues until the day you die. Term life insurance covers you for a specified period. While whole life insurance looks good if you only take a superficial view of it, it could mean that you’re paying more than you absolutely should for a payout that your family may never really need.  

Term life insurance could actually be more cost-effective since it covers a period when your family would be vulnerable without your income, and stops coverage at a point where your absence wouldn’t be a huge shock to your family’s finances. When comparing insurance packages, do take this into consideration. You might only really need cover for the next five years, for example, yet you may live another twenty years or more.

As a related point, your circumstances will change as time goes on, and that brings us to the need to review your life insurance periodically.

Stay on Top of Your Real Insurance Needs

A final point to consider when considering the “How much life insurance do I need” question is the fact that no matter how well you may do your calculations now, the situation won’t remain static.

Some very diligent souls review their life insurance once a year, but realistically, you shouldn’t need to review your cover more than once every five to ten years unless there have been significant changes to your family’s financial life. If you need to increase or reduce your cover, start by talking to your current insurer. Some of them will allow for some adjustment to your current plan.

What if Your Premiums are Very High Because of a Health Condition?

Certain health conditions will lead insurers to charge you more for life cover - if they’re willing to offer any cover at all. Depending on the nature of your health issues, that may or may not be a fair call. For example, people with Type 2 diabetes are often lumped into a worst-case-scenario group even though they’re managing their condition well and can be expected to live nearly as long as anyone else.

If you’re struggling to get a fair price on life insurance owing to health concerns, your best bet is to shop around - and if you're living with Type 2 diabetes, you can start right now with the Blueberry Life Insurance Cover Calculator.  It will guide you through the process of determining how much cover you need so that you can decide on a level of cover and then start comparing costs.

Looking for a quote on life insurance for a person with Type 2 diabetes? Life insurance for Type 2 diabetes is what we do, and we’re happy to say you won’t find a more cost-effective option anywhere else. That’s because we recognise you as an individual. Skip the worst-case estimates and get a realistic one that’s based on your real circumstances from Blueberry Life instead. Get the ball rolling right away. It’s as easy as filling out an online application - all you need is 5 minutes to tell us about yourself.

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This is a blog and should not be taken as financial advice.