How much life insurance do you need?
Too little cover leaves your family exposed; too much wastes money on premiums. This guide explains a simple framework for sizing cover, the types of policy, and how to keep premiums down.
The DIME method
A reliable way to size cover is DIME: Debt (clear all non-mortgage debts), Income (replace your income for the years your family needs it), Mortgage (clear it in full), and Education/expenses (children's costs and a funeral fund). Add these up, subtract any cover you already have, and that's your target. The calculator above does this automatically.
Level term, decreasing and whole-of-life
Level term pays a fixed lump sum if you die within the term — best for income replacement and family protection. Decreasing term reduces over time to track a repayment mortgage, so it's cheaper and ideal for mortgage protection. Whole-of-life pays out whenever you die (not just within a term) and is used for guaranteed funeral costs or inheritance-tax planning, but costs much more. Most families need level or decreasing term.
Write it in trust
What drives the price
The main factors are your age (premiums rise steeply as you get older — buy sooner), health and smoker status, the cover amount and term, and the policy type. A healthy non-smoker in their 30s can insure a large sum for a modest monthly cost; the same cover at 55 costs several times more. Locking in a level premium young is usually the cheapest route.
A family of four
Take a 38-year-old earning £40,000 with a £180,000 mortgage, £8,000 of other debts and two children. Replacing 10 years of income (£400,000), clearing the mortgage and debts, and adding ~£40,000 for the children plus a funeral fund gives roughly £633,000 of cover needed. On level term to match a 25-year mortgage, that might cost a healthy non-smoker around £25–£40 a month — a small price for that protection.
Common mistakes
- Only covering the mortgage. Clearing the mortgage helps, but your family also loses your income. Replace both.
- Not writing the policy in trust. Without a trust, the payout can be delayed by probate and may face inheritance tax.
- Delaying to "later". Premiums rise with age and health changes. The cheapest time to buy is now.
- Forgetting to update cover. A new child, bigger mortgage or pay rise changes your need — review every few years.