How Much Life Insurance Do I Need? A UK Calculator Guide for 2026

Quick answer

There is no single right number, but most UK households can work out a sensible figure in three steps:

1. Add up what would need to be paid off on death — mortgage, loans, credit cards.
2. Add the income your dependants would need to replace, for as many years as they need it.
3. Subtract what you already have — savings, existing cover, death-in-service, and your partner's earnings.

A widely used shortcut is outstanding mortgage plus 10x your net annual income. For a household with a £200,000 mortgage and £30,000 take-home pay, that lands around £500,000 of cover. It is a starting point, not gospel — a single parent of three young children needs more than a couple with no children and a paid-off house.

If you are not sure what your net income actually is, run it through the take-home pay calculator first. The figure that matters for income replacement is what lands in your account each month, not your gross salary.

Step 1 — Cover the debts

The cleanest part of the calculation is debt. If you died tomorrow, what would your family have to clear so they could stay in the home and not inherit your liabilities?

• Mortgage — the single biggest item for most people. Use the current outstanding balance, not the original loan.
• Personal loans and car finance — these do not disappear on death; they are paid from the estate.
• Credit cards and overdrafts — usually cleared from the estate before anything is passed on.

Note that debts are not personally inherited by your family in the UK — they are settled from your estate. The problem is that settling them can force the sale of the house. Life cover exists precisely so your family keeps the assets rather than liquidating them to pay creditors.

If your mortgage is a standard repayment mortgage, the balance falls every year. That is the case for decreasing term cover, discussed below. If you are on interest-only, the balance stays flat and you need level cover.

Step 2 — Replace the income

This is where most people under-insure. Clearing the mortgage stops the family losing the home, but it does nothing for the weekly food shop, energy bills, childcare or the years of school uniforms ahead.

A reasonable approach is to decide how many years of income your dependants need and multiply:

• Young children: cover until the youngest is financially independent — often 15-20 years.
• Older children / no children: a shorter window, perhaps to cover the partner adjusting their working life.
• Stay-at-home parent: still needs cover. The cost of replacing childcare, cleaning and household management is real money even though there is no salary.

A simple worked example. Priya earns £42,000 gross, which is roughly £32,500 take-home in 2026/27 (after the £12,570 personal allowance, 20% basic-rate tax up to £50,270, and employee National Insurance at 8% on earnings above the threshold). She has two children aged 4 and 6.

Priya would round up to a tidy £500,000 of level term cover running for 15 years, by which point both children would be near adulthood and the mortgage much reduced.

Because £390,000 sitting in an account would itself earn interest or investment returns, some families buy slightly less and rely on the fund growing — a compound interest calculator helps you sense-check whether a smaller lump sum, invested sensibly, could realistically throw off enough each year to live on. A pot of £350,000 returning a cautious 4% would generate £14,000 a year before eating into capital.

Step 3 — Subtract what you already have

Do not pay for cover you already hold:

• Death-in-service — most employers offer 2-4x salary, paid tax-free and usually written in trust automatically. But it vanishes the day you leave, so do not build your whole plan on it.
• Existing policies — old mortgage protection, a policy a parent set up, or cover bundled with a previous mortgage.
• Savings and investments — ISAs, premium bonds and pensions can all contribute. A defined-contribution pension pot can usually be passed to beneficiaries, often free of inheritance tax if you die before 75.
• Your partner's income — if your partner earns enough to cover the essentials alone, you need less.

The three main types of cover

Level term

The payout stays the same for the whole term. If you buy £300,000 over 20 years, your family gets £300,000 whether you die in year 1 or year 19. Best for income replacement and any debt that is not falling, such as interest-only mortgages. Premiums are fixed for the term.

Decreasing term

The payout falls over time, designed to track a repayment mortgage as the balance shrinks. Because the insurer's risk reduces each year, it is the cheapest option. The catch: it only suits a falling debt. It is no good for income replacement, because your family's living costs do not conveniently decrease just because the mortgage does.

Whole-of-life

Pays out whenever you die, with no end date, so it is guaranteed to pay as long as you keep up premiums. That guarantee makes it substantially more expensive than term cover, and it is usually bought for estate-planning reasons — for example, to fund a future inheritance tax bill — rather than for family protection.

For most working families with a mortgage and children, level or decreasing term is the right answer, and whole-of-life is a niche estate-planning tool.

Don't forget tax — and trusts

Two tax points matter.

First, a life insurance payout itself is not taxed — no income tax, no capital gains tax (and unlike investments, there is no annual £3,000 capital gains exempt amount to worry about, because it simply does not apply).

Second, inheritance tax can still bite. If the policy is not written in trust, the payout usually counts as part of your estate. Above the £325,000 nil-rate band, the excess is taxed at 40%. A £500,000 payout landing in a taxable estate could lose £200,000 to the taxman before your family sees it.

The fix is simple and normally free: write the policy in trust. This usually places the payout outside your estate, so it avoids that 40% charge, reaches your beneficiaries faster without waiting for probate, and lets you control who receives the money. Most insurers offer trust forms at the point of sale. If you have an existing policy that is not in trust, you can often put it in trust retrospectively.

How premiums are priced

The cost of cover depends mainly on:

• Age — the biggest single factor. Premiums roughly double every decade of age at the point you buy.
• Health and lifestyle — smoking can double premiums; weight, blood pressure and family history all feed in.
• Term length and sum assured — longer and larger means more expensive.
• Type — decreasing term cheaper than level term, both far cheaper than whole-of-life.

The practical lesson: buy when you are young and healthy. A 30-year-old non-smoker pays a fraction of what the same person pays at 45, and a single GP visit that flags a condition can move you into a higher band or get cover declined. Cover bought before children arrive is cheaper than cover bought after.

Linking it to your mortgage

When you take out a mortgage, the lender will often push their own protection product. You are not obliged to buy it from them, and shopping around is usually cheaper. Work out the cover you need against the actual loan size — the mortgage calculator shows how your outstanding balance falls over the term, which tells you whether decreasing term is genuinely enough or whether you need a level policy to protect income on top of the loan.

A common mistake is buying decreasing term equal only to the mortgage and stopping there. That keeps the roof over your family's head but leaves them with no income. Most families need both: decreasing term to clear the mortgage, plus level term to replace lost earnings.

A simple checklist

Before you buy, you should be able to answer:

• What is my outstanding mortgage and other debt?
• How many years of income would my dependants need, and at what level?
• What do I already have — death-in-service, savings, partner's income?
• Do I need the payout to stay level or can it decrease with the mortgage?
• Have I arranged for the policy to be written in trust?
• Have I bought it while I am as young and healthy as I will ever be?

Get those six right and you will avoid both the expensive trap of over-insuring and the far more common danger of leaving your family short.

Frequently asked questions

The FAQs at the top of this article cover the most common questions: how much cover to buy, whether payouts are taxed, the difference between level and decreasing term, whether death-in-service is enough, and why trusts matter. If you take one thing away, it is to calculate a real number first — mortgage plus income replacement minus what you already have — and only then go shopping for a product to match it.

Try the numbers

• Take-home pay calculator — find the net income figure you actually need to replace.
• Mortgage calculator — see how your outstanding balance falls over the term.
• Compound interest calculator — test whether a lump sum could generate the income your family needs.

Related reading:

• Emergency fund UK 2026: how much and where to hold it
• Inheritance tax UK 2025-26
• Cash ISA vs Stocks & Shares ISA 2026

Sources

• gov.uk: Inheritance Tax thresholds and rates
• gov.uk: Income Tax rates and Personal Allowance
• gov.uk: National Insurance rates
• gov.uk: Tax on a life insurance payout and trusts
• MoneyHelper: How much life insurance do I need?