How the calculator works
- Income to replace: what your family would need each year, usually your take-home pay, for the number of years you choose, such as until your youngest finishes school or college.
- Debts: your mortgage and other debts, so your family could pay them off.
- Other costs: children’s education and funeral costs, under More options.
- Less what you have: savings and investments your family could use, and life cover you already have through work or your own policy.
The result is rounded up to a round amount, as policies are sold.
Example
To replace $60,000 a year for 10 years, clear a $250,000 mortgage and $15,000 of other debts, and cover $10,000 of final costs, your family would need $875,000. With $20,000 of savings, that’s $855,000 of cover, so about $875,000: for example, a 20-year term policy.
Cover by income and years
Cover needed with a $250,000 mortgage, $15,000 of other debts, $10,000 of final costs and $20,000 of savings, by the income to replace and for how long:
| Income to replace | 10 years | 15 years | 20 years | 10 times income |
|---|---|---|---|---|
| $40,000 | $675,000 | $875,000 | $1,100,000 | $400,000 |
| $60,000 | $875,000 | $1,200,000 | $1,500,000 | $600,000 |
| $80,000 | $1,100,000 | $1,500,000 | $1,900,000 | $800,000 |
| $100,000 | $1,300,000 | $1,800,000 | $2,300,000 | $1,000,000 |
Working it out from your needs often gives far more than the 10-times-income shortcut, especially with a mortgage and young children: replacing $60,000 for 20 years needs $1,500,000, against $600,000 by the shortcut. These figures assume the payout isn’t invested. If your family would invest it and earn a little above inflation, they’d need less: set that under More options.
Choosing a term
Pick a term that lasts until no one depends on your income: until your children are grown up, or until your mortgage is paid off. Some people buy two smaller policies of different lengths, so the cover falls as their needs do.
Don’t forget
- Social Security survivors benefits may pay your spouse and children under 18 a monthly amount, which lowers what you need. Your statement at ssa.gov shows the figures.
- Disability insurance: you’re more likely to be unable to work for a while than to die young. Check whether your employer offers long-term disability cover.
- A stay-at-home parent needs cover too: replacing childcare and running the home costs money.
Buying a policy
- Compare quotes from several insurers, or use an independent broker. The price depends mostly on your age, health, whether you smoke, the cover and the term.
- Buy younger if you can: the same cover costs more each year you wait, and a health problem can make it dearer or harder to get.
- Check the insurer’s financial strength with a rating agency such as AM Best.
- Name your beneficiaries and keep them up to date after a marriage, divorce or birth.
Learn more
See our insurance basics guide, the budget calculator to fit the premium in, and the net worth calculator to add up what you’d leave.