Top of main content

How much life insurance do you need?

It’s important to consider how much life insurance you need, especially if you have loved ones to support and debts you’d want repaid.

The amount of life insurance you take out is a personal choice and some people choose to take more cover than others. 

To help you work out how much you might need, think about:  

What would you want your life insurance to cover?

Depending on your circumstances, you may need life insurance to:

Look after your children or dependents

If you have children – whether they’re young or adult dependents – you may want to think about the type of financial support they may need if you weren’t around. This may include childcare costs, day-to-day living expenses or perhaps carer costs.   

The amount of money needed will depend on:

  • how many children or dependents you have

  • how many years they’ll need support for

According to the Child Poverty Action Group, the basic cost of raising a child until their 18th birthday for a single parent is just over £6,206 a year, rising to £10,811 a year if you include additional expenses, such as childcare. That’s at least £111,708.1 

Support your partner

If you’re the main earner, the loss of your income could have a big impact on your family’s lifestyle. Look at your regular income after tax, as well as your family’s ongoing expenses, such as food, household bills or rent for example. This can give you an idea of how much they may need, financially. 

If your partner is the main earner, it’s still important to consider your contribution to the household. For example, if you’re a stay-at-home parent, your family may need money to cover childcare costs to enable your partner to go to work.

According to the Money Advice Service2, the average cost of sending a child under 2 to nursery in the UK is:

  • £138 per week – part-time (25 hours)

  • £263 per week – full-time (50 hours)

Pay off your mortgage

If you have a mortgage, the money received from life insurance can be used to repay the debt, so your family doesn’t have to. The amount of cover needed will depend on:

Your mortgage balance can be found on your latest statement or through online banking or your mobile banking app.  

If you have an interest-only mortgage, the amount you owe on your mortgage stays the same. The total balance needs to be repaid when the mortgage ends. For this type of mortgage, you may need a level-term insurance policy, where the amount of cover stays the same for as long as the policy is in place.

If you have a capital repayment mortgage, decreasing-term cover may be suitable, as your mortgage balance will reduce over time. This type of cover reduces in line with your outstanding mortgage balance, which means your monthly payments will be lower than level-term cover. Although the amount you pay will stay the same throughout.

How long do you want to be covered for?

Once you’ve decided how much you want to cover, you also need to decide how long you want your policy to last.

If you have children to support, you may decide to provide cover until the youngest reaches adulthood and becomes financially independent.  This could be 18 or 21 if they go to university.

If you’re covering your partner, you may need to replace some income until they retire or perhaps they’d need support for a few years to adjust. This is where it’s best to talk to each other about how things would change and what they would need.

If you only want to make sure your mortgage is repaid, the length of your policy will need to cover the term remaining on your mortgage. You may have more than one mortgage account and these could have different end dates so it’s important to check these. 

Do you have savings, investments or an existing life policy?

If you have enough savings or investments available, you may want to deduct this amount from the level of life cover you need. This way, you’re not paying for more insurance than you need. 

You should also consider any life insurance you may already have, through your employer for example. Although, keep in mind that when you leave your job, you’ll lose this cover.

How much can you afford to pay for an insurance policy?

While it’s important to financially protect your loved ones, make sure it’s at a level that you can afford. Keep in mind – the higher your cover amount, the higher your monthly premiums will be. 

However, other factors will also be considered, such as age and lifestyle. For example, the younger you are, the cheaper your quote will be. 

Calculate how much life cover you need

Our life insurance calculator can help you find the cover you need. Just tell us what you want to protect and we’ll work out the rest.

If you need any help with life insurance, you can also chat to one of our financial advisers. They’ll be happy to recommend a policy and level of cover that’s right for you and your family. 

Our protection advice is available, without a fee, to UK residents over 18, who hold an HSBC current or savings account. 

1Child Poverty Action Group: ‘The cost of a child in 2020’ 
2Money Advice Service: Average childcare costs