How to use a calculator to work out how much life insurance you need

19 January 2021

5 min read

Faith Archer
Faith Archer

Personal Finance Journalist


Know you need life insurance, but unsure how much? That’s where a life insurance calculator can come in handy.  

By using tools available on the internet, you can work out how much life cover you need. This is a better alternative to guessing, or making decisions based on shaving a few pounds off your premiums.

Life insurance, or life cover as it’s also known, is designed to protect your family should the worst happen. It pays out an amount of money if you die during the term of the policy. It’s a long-term financial commitment, so it’s good to get it right!


Too much or too little - find out with a life insurance calculator

A life insurance calculator can help estimate the appropriate amount to suit your circumstances, known as the ‘sum assured’.

If you underestimate, there might not be enough to provide for your family’s financial future. Yet if you overestimate, you might end up paying too much for your policy.


What does your policy need to cover?

Life insurance calculators ask a few simple questions to see what your policy needs to cover.

Many people associate life insurance with clearing their mortgage, if they’re no longer around to pay their mortgage bills each month. A life insurance calculator can help you look beyond your home loan. After all, life cover that only pays off your outstanding mortgage might keep a roof over your family’s heads, but it won’t put food on the table or keep the lights on.

Instead, you might also want to consider providing living expenses for those who depend on you financially. This could include, childcare and education costs until your children reach 18, and potentially university costs afterwards.

You might also want to clear any other debts, loans or credit card balances, or leave a lump sum for funeral expenses.   


How much and how long?

As you get older, your financial circumstances may change. Your children may have flown the nest and can financially support themselves. You may become more interested in cover that could, for example, help with clearing debts, topping up living costs or paying for your funeral.

Be aware that, the costs of traditional ‘whole of life’ or ‘term’ insurance creep up with age, and may become more difficult to arrange, especially if you have health issues. 

Instead, you might consider an ‘over 50s’ policy, which will pay out a lump sum when you die. 

Over 50s policies have the advantage that you don’t have to supply the insurer with information on health conditions, or risk being rejected for cover.

Typically, the cover continues as long as you keep paying the premiums, although with some policies you don’t need to keep paying after the age of 90.

However, if you are fortunate enough to live for many more years, there is a risk that the payout amount cash paid out may be worth less than all the premiums you paid in.

By thinking about when money might be most needed, you can work out how long your life insurance needs to last, and find the right type of cover to suit your circumstances.


What cover do you already have?

Finally, life insurance calculators will usually ask if you already have any existing life insurance policies, death in service benefits from your job or savings and investments.

Any money from these sources can then be set against the life cover needed, reducing the amount you need to insure, and therefore cutting your premiums each month.


How a life insurance calculator can help?

Using a life insurance calculator is an easy way to estimate how much life cover is needed to provide for your nearest and dearest. Rather than plucking a figure out of the air, google ‘life insurance calculator’ and pop in a few details.

Investing a few minutes now could mean your loved ones are properly looked after in future.


Faith Archer is a freelance personal finance journalist and money blogger at Much More With Less. Previously Deputy Personal Finance Editor at The Daily Telegraph. She has also written for publications including The Sunday Times, The Financial Times, Mirror Online and the Money Advice Service.