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Most conversations about life insurance start with the product — term, whole, universal — and never reach the only question that decides whether the policy works: how much cover is enough?
Start from the household, not the policy
A sum insured is a replacement for something specific. Write down four figures and you will have a defensible number before you have looked at a single quote.
- Debt. The outstanding mortgage, plus any loans that would not be written off on death.
- Income to replace. The gap between what the surviving household would earn and what it needs to spend, multiplied by the number of years that gap lasts.
- Costs still to come. Education, childcare, and anything else with a date attached.
- Final costs. Funeral, estate administration and the months of admin that follow a death.
Then subtract what already exists: savings, investments that could be liquidated, and any death-in-service benefit from an employer.
The number people get wrong is the second one
Debt is easy to look up. Income replacement is where households under-insure, usually by choosing a round multiple of salary because it sounds sensible.
A multiple is a shortcut for a calculation, and it stops being a good shortcut as soon as the household is unusual in any way — one earner rather than two, a young child rather than a teenager, self-employment rather than a salary.
Work out the number of years, not the multiple. A family with a two-year-old needs about sixteen more years of stability. A family with a seventeen-year-old needs two.
Then choose the term
Once you have the sum insured, the term almost picks itself: it runs until the last of those obligations ends. That is usually the year the mortgage finishes or the year the youngest child leaves education, whichever is later.
Setting a term longer than the need is not free. It raises the premium every month for cover that answers a question nobody is asking.
Check it again when something changes
A sum insured is correct on the day it is set and slowly stops being correct afterwards. Review it after a move, a birth, a change of job, and any significant change in debt. Most policies allow an increase without new health questions within a window after events like these — a feature worth asking about before you need it.
What this does not decide
None of this tells you whether term or permanent cover suits your situation, how a policy interacts with your estate, or what any of it means for tax. Those depend on circumstances this page cannot see. Get the sum insured and the term right first; they are the decisions that do most of the work.
