How much life insurance do I really need? A checklist

That elusive magic number. How much life insurance do I need to make sure that my family and loved ones will be ok should the absolute worst happen? It’s not something we want to spend time thinking about. But should the worst happen, your family will be glad that you did.

The only thing that really matters is how much income or cash your dependents will need if you’re not around. You need to consider not only where you are at today but also where you might be in the future.

Where to start and what to think about:

1. Who is dependent on you? Do you have a spouse, kids, or anyone else who depends on you financially? Keep them in mind when you think about the future.
2. What debt do you have? Ideally, if you were to die, your debt would be paid off so your family would be debt-free. This might mean the difference between staying in the family home, keeping the car and even the amount that your partner or dependents need to work.
3. What other bills will your family still have to pay? Beyond debt, other bills have to be paid regularly too. You can use your bank statements or online banking to work out how much those bills roughly come to each month, and then you’ll know how much income is needed to cover it. This will buy some time for your loved ones to not have to worry about bills or to rush back to work while they are grieving. Even a buffer of a few months could make a huge difference.
4. What future do you want for your family? Beyond day-to-day living, you might want to think about what education plans you have for your kids or what opportunities you want your loved ones to have. Do you want to have money available for school fees or tertiary education? What about family holidays?

We have a calculator that you can use to calculate the amount of insurance that you might need, based on the priorities for your family. By playing around with it and trading-off different things, e.g. like repaying all your debt versus some, you can get a sense of the level of cover and cost that best meets your needs.

For instance, $500,000 of life cover for a 35-year-old non-smoking male, costs $26.22/month, if he adds $25,000 of Critical Illness cover, it increases to $29.06/month. Alternatively, the same man might choose to have $610,000 of Life Cover and no Critical Illness for $29.07/month.

Or if his budget was $50 a month he could get $1.25m of Life Cover with no Critical Illness.

You might also be interested in knowing how much life cover other people your age have asked for quotes on from New Zealand life insurance companies. We’ve accessed over 84,000 life insurance quotes that Kiwis have asked for over a two year period.

The most popular amount of cover that 35-year-old non-smoking women have gotten quotes for is $500,000.

We know that it can feel really complicated, but it doesn’t need to be. The most important thing is that you balance what you think you need with what you can afford to pay.