How much cover do I really need? And which kind?
The fear of being sold too much, or of being left uncovered. A simple method instead of “magic” numbers, the kinds of cover in plain words, and what the law requires of anyone who proposes an amount.
In short
There is no number for everyone; there is a simple method: debts, plus the income your family would need for as many years as needed, plus education, minus what you already have. “Ten times salary” is a rule of thumb, not a fact.
- Write down your loan balances and your family’s basic yearly costs.
- Note the year each need ends, such as the loan or education.
- Gather the cover you already have: employer, loan, personal.
- Ask to see the calculation behind an amount in writing, and at least two options to compare.
From the series “The questions you are afraid to ask”: questions real people ask, with honest answers.
At a glance
- There is no number for everyone. There is a method: debts + income for as many years as needed + education − what you already have.
- “Ten times salary” is a rule of thumb, not a verified fact.
- The law requires every proposal to be consistent with your demands and needs. Ask to see the calculation.
- Pure protection usually gives more cover for the same premium; savings policies combine cover and value, with costs.
Between two fears
On one side, the fear that someone will sell you more than you need. On the other, the fear that if something happens, the amount will not be enough. In between, “rules” you hear from friends: ten times salary, as much as the loan, as much as you can afford. The best answer is not a number someone gives you, but a calculation you understand.
A method, not a magic number
| Step | What you write down |
|---|---|
| + Debts | The balance of the mortgage and other loans. |
| + Income | How much the family would need a year, times the years until the youngest child is independent or your partner adjusts. |
| + Education | Whatever you want to secure for the children’s studies. |
| + Final costs | The funeral and the family’s first expenses. |
| − What exists | Employer group cover, loan cover, savings, and Social Insurance benefits (ask for the amount). |
The kinds of cover, in plain words
- Term: covers a period, for example until the children grow up; it usually pays only if death happens within it.
- Whole of life: covers your whole life; it usually costs more for the same amount.
- Savings or investment: combines cover with saving; it has costs and, for investment types, risk.
- Riders: critical illness, waiver of premium, accidental death, added to a main policy.
The IDD requires your demands and needs to be established before any contract, and the proposal to be consistent with them; when advice is given, it requires a personalised recommendation explaining why. For insurance-based investment products, the advisor also assesses suitability, with a written statement.
Your questions, one by one
How much life insurance do I actually need?
There is no number that fits everyone. Add the debts, the income your family would need for as long as they would need it, the children’s education and final costs; subtract what already exists. The result is a starting point for discussion, not an exact answer.
What is the difference between term and whole-of-life insurance?
Term cover protects a set period and usually pays only if death happens within it. Whole of life covers your whole life and usually costs more for the same amount. One protects a period of need; the other leaves something whatever happens.
Is it better to have pure protection or a policy with savings?
Pure protection usually gives much more cover for the same premium; a savings policy combines cover with building value, with costs and, for investment types, risk. It depends on your goals; for investment products the advisor must assess suitability (IDD Article 30).
How many years should my cover last?
Usually until the need ends: the youngest child becomes independent, the loan is paid off, or your partner reaches retirement. Write down the year each need ends and choose the duration from that.
Is ’ten times my salary’ a good rule of thumb?
It is a rule of thumb, not a verified fact, and it ignores your debts, savings, the children’s ages and any cover you already have. Use it at most as a first check; a simple calculation with your own numbers is better.
Do I need life, health, critical illness and income protection — or just one?
It depends on what would hurt most. Life cover protects against death; health insurance pays medical costs; critical illness cover pays a lump sum on diagnosis; income protection replaces income while you cannot work. Start with the biggest risk to your family’s finances, within your budget.
Should cover include the mortgage, school fees and living costs?
Ideally, the cover answers each of these needs, but you can set priorities: often the loan first, then a few years of living costs, then education. Check whether the loan already has its own policy.
What is a rider and which ones are worth having?
It is an extra cover added to a main policy, such as critical illness, waiver of premium or accidental death. It is worth having if it covers a real gap you have, not because it is cheap. Read the definitions as for any cover.
Advisors always recommend more cover than you need.
Some may. The law requires every proposal to be consistent with your demands and needs and, when advice is given, a personalised recommendation explaining why (IDD Article 20). Ask to see the calculation behind the amount, and a smaller option to compare.
Should my spouse and I have a joint policy or separate ones?
A joint policy usually pays once, on the first death, and then ends; two separate policies can each pay. Separate ones are usually more flexible (after a separation, for example) but may cost more. Ask for quotes for both.
Is accidental death cover enough on its own?
No. It pays only if death is caused by an accident, as the policy defines it, while most deaths are caused by illness. It can complement life cover, not replace it.
Can I start small and increase cover later?
Often yes. Some policies give an option to increase cover at life events without new medical questions; ask whether yours does. Otherwise, new cover will usually mean new health questions.
What happens at the end of a term policy — do I get anything back?
With pure term cover, usually not: you paid for protection during those years. Policies with savings or a return of premium can pay something, at a higher premium.
If I survive the term I’ve wasted my money.
It is like insuring a house that did not burn down: you paid for protection, and your family had it every day. Surviving is the best outcome, not a loss.
Is a ’return of premium’ policy worth the extra cost?
It depends. You pay more each year to get premiums back at the end if you are alive. Compare that extra cost with what it would become if you saved it yourself, and check what happens if you stop early.
Does my existing employer and loan cover count toward what I need?
Yes, but check how much each pays, to whom and until when. Employer cover usually ends when you leave; loan cover usually pays the bank and falls with the balance. Count them, but do not rely on them alone.
Can a needs analysis help me decide without being sold to?
Yes, that is what it is for: your needs on paper before any product. The law requires distributors to establish your demands and needs before any contract. Keep a copy and use it to compare offers.
What is an endowment policy?
It is a policy that combines life cover with saving for a set term: it pays at maturity, or earlier on death. Values depend on the policy (guaranteed or investment-linked); early surrender usually returns less. Suitability is assessed by a licensed advisor.
Questions worth asking
- Can I see in writing the calculation behind the amount you propose?
- What happens at the end of the term, and what if I stop early?
- Can I increase the cover later without new medical questions?
- What are the total costs if there is a savings or investment element?
What you can do from today
- Write down the balances of your loans.
- Work out the family’s essential yearly costs.
- Note the year each need ends (loan, studies).
- Gather the cover you already have: employer, loan, personal.
- Ask for at least two amount options, to compare.
Every policy has its own terms. What we write here is general information, not advice; for your own case, what your policy says applies, and it is worth confirming it in writing with your insurer.
For savings, investment and pension plans this text is education, not a recommendation of any product or fund. Past returns do not guarantee future ones and values can fall. What suits you is for a licensed advisor to judge, assessing suitability (Article 30 of the IDD).
Sources
Read also: Whole life insurance: when it makes sense · Ages 25–30: where to start · Business partners: if one is gone · Surrender: why you get less in the early years
If you would like a second look, book an appointment with an advisor and bring your policy and your questions. You will go through them together, with no obligation.
