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Dublin 2.

Tel : 01 6629 133
Email: info@mylife.ie
We are often asked “How much life insurance do I need?”

Putting life insurance in place to protect your family is often a case on matching the ideal with the feasible. Let’s start at the beginning, why do I need life insurance? Broadly speaking, the idea that if you should die prematurely, your policy will pay out a lump sum which can be invested to provide your family with a replacement income. The ideal amount of cover will depend on your circumstance.

How to calculate how much life insurance I need:

1) Add up your monthly household outgoings. These should be cost of living items such as food, utilities, travel, entertainment, school fees, child minding costs, holidays, etc. Do not include things such as contributions to regular savings plans which could be discontinued if required without effecting your quality of living. Do not include your mortgage payment as this should be covered by a separate “mortgage protection” life insurance policy. Do not include other loans such as credit card or car loans. Do not include loans on investment property, these should be covered by separate mortgage protection.

2) Once you have totalled the above, subtract the outgoings that would cease should one of you die. This will give you the figure for the amount of income you would need to replace.

3) If you have an investment property (covered by life insurance) subtract ½ the monthly income received from this figure.

4) Multiply this by twelve to give you an annual income figure.

5) Multiply this by 1.3 to broadly compensate for taxation.

6) Multiply this figure by 20. This will give you the capital amount which, if invested prudently should be sufficient to provide a replacement income.

7) Add to this the amounts of any outstanding loans such as car loans and credit card debt as these should be repaid in full and not treated as an expense.

8) If you employment provides death in service benefit, subtract this. If one partner has this type of cover but the other does not it will be possible to insure each for different amounts

9) Next take this figure and subtract from it any assets that could be used towards income generation or disposed of the do so. For example if you have an investment lump sum, subtract this. Do not subtract the value of your home or other assets which you intend to keep such as a valuable painting. These count towards your “net worth” but do not solve the problem at hand.

10) You now have a reasonable approximation of the ideal amount of life insurance cover you need.

Remember, this is not an exact science! In an ideal world, it would be a good idea to take out a little more cover then this figure suggests. However, often the big question is affordability so it may be necessary to take out a little less. Generally speaking the younger your family is, the more cover you will need. This is on account of a surviving family having a longer period to fund for and a general presumption that you will acquire greater wealth as you grow older. The good news is that the younger you are, the lower your premium will be.

See how much your cover would cost here
If you have any queries please pick up the phone and one of our qualified staff will assist you.

Call us now on 01 662 9133
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