How Much Life Insurance Do I Need?
Life insurance is one of those things most people know they should have – but figuring out how much cover is the right amount? That’s where things can get a little tricky. There’s no one-size-fits-all answer, because everyone’s situation is different. But there are some key questions and discussions that can guide you to the right decision.
Here’s a breakdown of what to think about when considering how much life insurance you really need.
1. What Would Your Family Need If You Were Gone Tomorrow?
This is the heart of the question: if the worst happened, what financial gap would your family face?
Would they need help paying the mortgage?
Could they afford childcare or education costs?
Would your partner need time off work to manage the transition?
Try to estimate how long they’d need financial support for and what it would cost to maintain their current lifestyle during that period.
2. What Debts Do You Have?
A common starting point is making sure your life insurance is enough to clear any major debts:
Mortgage
Personal loans
Credit cards
Hire purchases
The idea is to ensure your family won’t be burdened by these obligations while dealing with a difficult loss.
3. What Ongoing Living Costs Should Be Covered?
After clearing debts, think about ongoing living costs. This includes:
Groceries
Power and utilities
School fees or university costs
Car expenses
Health and wellbeing
You might decide to cover a few years of these costs or more, depending on your goals.
One way we look at is going by multiples of your annual income. After the debt like your mortgage is taken care of, a years income can last 2 and sometimes 3 times that long.
4. How Much Would a Funeral or Tangihanga Cost?
This can be a sudden and substantial expense. Many people underestimate the cost of a funeral, which can easily exceed $10,000. Including funeral cover in your life insurance amount can help ease the financial stress on your whānau at an emotional time.
5. What Support Systems or Assets Do You Already Have?
Do you already have:
KiwiSaver or other investments?
Employer-provided life cover?
Family support or a partner with a strong income?
These can reduce the amount of life insurance you may need.
6. What Are Your Future Goals for Your Family?
Some people want their life insurance to go beyond just “getting by.” Maybe you’d like to:
Leave a lump sum for your children’s first home deposit
Help your partner retire early
Fund long-term education plans
Your goals will influence how much extra cover you might consider.
7. What’s Your Budget Right Now?
It’s important to strike a balance between ideal cover and what you can realistically afford. The “perfect” amount of insurance is still only helpful if you can keep the policy active long term.
A financial adviser can help you prioritise cover based on your needs and budget – so you get meaningful protection without overextending yourself.
In Summary
When working out how much life insurance you need, it’s not just about a number – it’s about peace of mind. The right cover should give your family financial breathing room when they need it most.
Take the time to sit down and talk through your personal situation. Whether it’s with your partner, whānau, or a trusted adviser, having those conversations now can make all the difference later on.
Need help figuring out the right amount of cover for your situation? Get in touch – we’re here to make it simple and tailored to you.
Glen Hatcher
Financial Adviser
New Vision Financial Services
Plan your future and let us help you have peace of mind along the way.