How Much Life Insurance Do I need? - Boss Of My Money

How Much Life Insurance Do I need?

Categorised as Financial Wellness
family asking how much life insurance do i need

Would you agree that death is inevitable and no one knows when death will come? The saying goes, ‘If you fail to plan; you plan to fail.”

Life insurance fulfills financial needs such as funeral expenses and income replacement for family members when a person dies.

Before getting any type of life insurance, first, understand your financial obligations and wishes for your loved ones. It’s important to have enough life insurance coverage as some people have too much or too little.

Nowadays, people hold on to too many financial policies that they don’t need or pay too much for.
This article presents answers to frequently asked questions about life insurance, how much life insurance you need and how to calculate this.

By the end of this article, you’ll understand how much life insurance you need. You’ll also have the opportunity to schedule a free appointment with a life insurance agent.

What is life insurance?

Life Insurance Policy is a contract between an assurance holder and an insurer. Upon the death of the insured person, an agreed amount will be paid as a lump sum or as regular payments to the beneficiary in exchange for a premium.

What are The different types of life cover?

Term life policy

Term life runs for a number of years, it could be active for 5, 10 or 25 years or more. You are only eligible for a payout if you die during the policy term. There is no lump sum payable at the end of the policy term.

1. A whole life policy

The whole life insurance policy, also known as permanent life insurance, guarantees the insured person to remain covered for his/her entire life provided the required premiums are being paid till death. This policy is always active, and the beneficiary will get a payout no matter what.

2. Level term insurance

The level-term policy keeps the premium price the same throughout the contract term. While the coverage time of the policy increases.

3. Death in service Insurance

Death-in-service insurance is normally provided by an employer. The beneficiary/dependent of the insured person will receive a death benefit lump sum payment when he/she dies while in service.

4. Accidental Death Insurance

It is also known as “accident expenses” or “accident death insurance.”

This insurance pays the holder directly in the event of an accident resulting in the death of the insured person. Employers provide this insurance for employees as part of their workplace benefits.

Should I get Life Insurance, do I need it?

Life cover is essential to people that have dependents who rely on their income for survival. In the event of the breadwinner of the family dying income replacement is provided. Life cover guarantees that your responsibilities are met even in death.

Who does not need it?

While it’s a personal choice, not everyone will need life cover. For instance, singles, those without dependents, people whose partners earn enough money for the family to live on, low-income earners who could be eligible for social security would not need a life cover.

Therefore, the answer to the question “should I get Life Insurance” depends on the situation a person is in. If found in a position that requires it, it is best to get cover as soon as you need it because it is more expensive the older you are and if you are diagnosed with critical or terminal medical conditions prior to your policy being in place.

How Much Life Insurance Do You Need?

Having a clear understanding of this topic is the stepping stone in selecting an appropriate policy broker and premium cover. This article presents you with the formular to consider when deciding on how much Life Insurance you need.

The formula is simple. Make a good estimate by calculating your current financial situation, and annual salary. Imagine what your loved ones will need in the coming years. Then decide on how much life coverage you need. Continue reading to get more information on this.

Who needs life insurance and how to calculate life insurance?

People with dependents who are financially dependent on them need a life cover to guarantee financial stability when they die.

People that are in debt like mortgages need life cover to pay the debt if they died. In fact, you can’t get a mortgage unless you have life cover.

Lenders want to make sure the debt will be paid in the event the homeowner dies.

Consider the following when calculating life insurance

As a rule of thumb, calculating the face value of life insurance means taking into consideration the DIME method.

Debt income, mortgage, and education!

Calculate financial obligations like stay-at-home mum or dad which increase expenses on the provider in the home.

Include car loans, funeral costs, inheritance, serious illness, and future cost of dependents.

Add the above. Then multiply the total sum by ten (10) or fifteen (15) times to reach a decision on how much cover you may need.

How much does life insurance cost?

The rates of life cover vary from one insured person to another. This is because factors determine the price of a life insurance policy.

These factors include age, medical conditions, smoker’s status, and the length of the policy.

Significantly, the Life cover will be expensive for the aged and the sick compared to the young and healthy. Always check exactly what is covered for the duration of the monthly payment. What your life cover entails will also determine the cost of it.

Is there a Minimum Amount of Life Insurance You Need?

In addition, choosing the face value of life insurance needed depends on numerous factors which include debt, the financial responsibility of the insured person, etc. Financial experts recommend purchasing ten (10) to fifteen (15) times your annual income in coverage. The minimum amount needed differs from one insured person to another.

What is the alternative to having life insurance?

In all honesty, life cover is essential because of the financial stability it leaves your dependents. There are, however, alternatives to life cover that can be used to provide financial stability for your dependent’s financial commitment.

These alternatives include investing your money and saving, purchasing mortgage insurance, or having a critical, serious illness, or disability insurance policy.

How to save money on your life insurance.

As a matter of fact, saving money on life insurance is a skill on its own, rather than hiring a financial advisor. When deciding to purchase a life cover, one must be conscious of saving money and the ways to do it.

These ways include;

  • looking for financially sound companies that offer value and give rewards and added benefits,
  • Shopping around and have a premium you are likely to pay,
  • Use an agent to talk you through the process
  • Prioritise your health by taking care of yourself
  • When buying a term policy, look for an indexed and guaranteed term policy.

Do you have to pay tax on a life insurance payout?

After an insured person passes away, the lump sum payout claimed by a beneficiary is not taxable if the beneficiary received the proceeds immediately. If the insured person activated a clause that delays the payment, any interest being made is taxable. You can also protect your policy in your will.

Is it easy to claim life insurance?

To claim benefits from a life insurance company when an insured person died is pretty straightforward.

When an insured person passed away, the stated beneficiary of the policy will simply inform the insurance broker/company about the death and make a claim.

The beneficiary will be asked for relevant documentation and process the paperwork. Once that is all sorted correctly, the insurer will pay out the money within days or weeks depending on the terms and conditions of the policy.

Other points to consider about knowing how much life insurance you need

Joint life insurance policy vs 2 singles life insurance

The joint policy covers two lives and activates on a “first death basis”. When one of the persons dies during the length of the policy the amount of cover is paid out meaning the end of the policy.

Two singles cover means couples have their separate life cover which they paid their premiums for, when one dies, the other will receive the lump sum and still has his/her policy activated.

Interestingly, two single life cover policies can sometimes be cheaper than a joint life policy because there is nothing stopping either party from going to different insurance companies to find the cheapest insurance quote.


There is no specific universal age limit to purchasing life cover. Besides, Insurance companies have different policies and contain different services. For instance, some Insurance companies can sell cover to 85 years old while others don’t. Over 50s can get cover with health conditions with some companies while others will It all depends on the issued company.

Can I pay life insurance for someone?

Yes! You can pay for someone else’s life insurance cover with their clear consent.

4 Myths about having life insurance

1. It’s too expensive

Indeed, there are myths surrounding life cover. Some people are with the belief that life cover is too expensive and cannot afford it. Life cover is as expensive as you want it to be. It would be best only to get life cover you can afford to pay, ensuring you can maintain premium payments. The cost of life insurance is dependent on your age, medical history, coverage amount, and the number of years you have on the policy. Term life insurance policy is generally much cheaper than whole life policies.

2. My kids will not work hard enough

Others believe that purchasing life cover will prevent their children to work hard for their own money and that they want them to work hard and make their own money. Parents can ensure their children are taught money principles as well help to have a better start in life. If you are worried about how your children may utilise this money, you can always state your conditions in a will.

3. What if I out-live my policy term

Another myth is that people will not purchase life cover that is time-bound such as term policies because they believe they might live longer than the lifespan of the policy and will not get the lump sum cash out.

You must remember that having life cover is a form of risk management and one should still work towards becoming financially independent by the time your policy ends.

4. I’m too young

When you are young and healthy, life insurance is cheaper. If you wait until you are older, it will cost more, especially if you develop health conditions down the line. Your cover will cost more due to the added risk insurance companies have to take on.

Young people also have to think about if their parents or loved ones can afford their funeral if something were to happen. Therefore, having a small cover to pay for funeral expenses is a wise thing for any 18 year old to do.

Finally, believe they have assets that will make money for their dependents when they are dead, therefore, they deemed it unnecessary to purchase a life insurance policy.

It’s a wrap

Now that you understand how to calculate how much life insurance you need, it’s time to plan your life and the future of your dependents.

As well as using an online life insurance calculator, there are policy agents who provide a personalised consultation to provide quotes that suit your needs. Send your details here and Esther will be in touch with recommendations.

Hopefully, this article has provided answers to your concerns, fears, and myths about how to calculate your policy.