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A needs-based estimate: debts cleared plus income replaced for your chosen years, minus what already exists. Decreasing term suits repayment mortgages; level term suits family income needs; writing the policy in trust keeps the payout outside your estate for inheritance tax and speeds it up. A guide, not financial advice.
What The Life Insurance Cover Calculator Works Out
- Suggested cover: a needs-based figure: income x years to replace, plus the mortgage and other debts, minus existing cover and savings. GBP 35,000 replaced for ten years plus a GBP 150,000 mortgage and GBP 5,000 of debts, less GBP 20,000 in place, points to GBP 485,000. It beats salary multiples because it prices what actually has to happen if the income stops.
- Rule-of-thumb cross-check: the old ten-times-salary rule and mortgage-only cover, shown alongside as a sense check. Ten times salary lands near the needs figure for many families, which is why it survived as a rule.
- Years of income to replace: typically until children finish education or the mortgage ends; 10 to 20 years is common. Non-earning partners need cover too, since replacing childcare is an income problem by another name.
- Share of income dependants need (advanced): a household often needs 60% to 80% of the lost salary rather than all of it, because some costs (commuting, pension contributions, one person's spending) stop. Set it above 100% if the survivor would also have to pay for childcare.
- Inflation-proof the income (advanced): uplifts each year's replacement income by your chosen rate so the lump sum still buys the same in year ten. Some policies offer indexation that rises with inflation for a higher premium.
- Death-in-service benefit (advanced): many employers pay 2x to 4x salary if you die while employed. It is real cover and is deducted here, but it leaves with the job, so it discounts rather than replaces personal cover.
- Funeral and education costs (advanced): a UK funeral averages around GBP 4,000 to GBP 5,000 before extras; a lump sum for school fees, university or childcare can be added as a separate one-off cost.
- How to structure it (advanced): level term pays a fixed lump sum; decreasing term tracks a repayment mortgage down and is meaningfully cheaper; family income benefit pays a monthly amount for the term, which matches how the money would be spent. Joint policies pay once, on the first death, so two single policies usually protect a couple better.
- Trust and disclosure: writing the policy in trust keeps the payout outside the estate for inheritance tax and pays in weeks rather than after probate, at no cost at application. Honest disclosure of health and smoking status keeps the policy valid. Premiums lock at the age and health of purchase, which is the whole argument for buying young.
Further reading: MoneyHelper: life insurance.