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How Much Life Insurance do You Need?

how much life cover do you need?

As a rule, I don’t read newspapers.

Far too depressing (even for me who deals with death and illness every day)

But yesterday, at the dentist, a story caught my eye about swimming at Lahinch beach who got into trouble.

But no panic. I wasn’t that far out, and all I had to do was swim into where I could stand on my feet. So, although I was tired, I hit out for terra firma, swimming as hard as I could. But still, no bottom. What I had not realised was that there was an undercurrent carrying me further out and that the current was stronger than my puny efforts to beat it. I was really tired by now and no strength was left in my arms but I kept repeating the mantra: “don’t panic, don’t panic”.

Thankfully he was rescued by a lifeguard who had

put his own life at risk by swimming out against the current to save me, a total stranger. How could I possibly thank him enough? To me, my life was priceless and therefore no amount of money could pay for the saving of it

In the end, the guy pressed a tenner into his rescuer’s hand “to buy a few pints.”

He ended his story by stating he still doesn’t know how much his life is worth.

Do any of us?

When it comes to a life insurance policy, it’s fairly black and white.

Depressingly, your worth is a number – how much you will earn in your lifetime.

Yep, from a life insurance point of view, you are simply a money machine.

How much life insurance do you need to protect your family?

You know WHY you need life insurance, but HOW MUCH life insurance do you need?

First off, relax, there’s no exact answer. You could drive yourself mad trying to figure it out.

There are two ways you can provide for your family on your death.

  1. Leave them a lump sum of money, e.g. €500,000
  2. Drip-feed an amount into their account each month, e.g. €2000 per month

I’ll go through both options in more detail here:

1) Lump Sum Life Insurance

Let’s says you earn €50,000 per year and expect to work for the next 30 years.

You have potential earnings of €1,500,000 over those 30 years.

If you die, your family loses that potential income.

So do you need €1,500,000 worth of cover? 


Your mortgage protection policy will clear your mortgage so that eliminates one significant outgoing.

Plus, I hate to say it, but you’ll be gone too and so will your day to day costs (food, clothing etc.), so that reduces the amount you need even further.

Here’s how to quickly calculate how much life insurance you need

These are my two “back of an envelope” ways to promptly figure out how much life cover you need

a) If you are buying life cover to protect your partner who relies on your income

Multiply your current income by your years to retirement.

Then multiply the answer by 0.66

Using our example above:

(€50,000 x 30 years) x 0.66 = €990,000.

So I recommend life insurance of €990,000 over a 30-year term (or how many years to have until you retire)

b) If you are buying life cover to protect your children while they depend on you financially.

Instead of using years to retirement, you can use the age of your youngest child to work out the cover you need.

Say your youngest child is 3:

  1. Subtract youngest child’s age from 25 (by 25, they should be financially independent) : 25 – 3 = 22 years
  2. Multiply the answer by your current salary. (€50,000 x 22) = €1,100,000
  3. Multiply this by 0.66. €1,100,000 x 0.66% = €726,000

Those are two back of an envelope ways to calculate how much life cover you need.

Give it a try yourself below in our handy wee life insurance calculator tool:

2) Monthly Income Life Insurance

What was she meant to do with 1 million euros?

John had looked after that side of things, she looked after the children. It was old school but it worked. She stared blankly at the piece of paper, the only time she had seen so many zeros was on those novelty Lotto cheques.

The bank manager again offered his condolences then asked:

“Do you know what you’re going to do with it or would you
like some advice. It’s a lot of money”

She took his advice, what else could she do, she was useless with this kind of stuff.

3 years later, her €1m was worth €400,000. The property and bank shares she has been advised to invest in had nosedived. Her fat cat banker apologised and told her nobody saw it coming.

Her children (4 and 6) now faced an uncertain future.One million euros would have put them through school and college without her having to return to work. Now she would have to get a job to secure their future and ask her elderly mother to look after them while she was at work.

This isn’t what John had planned….

So why am I telling you this?

If your spouse received a lump sum of money to take care of your family, would they know what to do with it or is there a chance it could also disappear in bad investments?

Managing a large lump sum can prove a real challenge if you have just lost a loved one. If you want to make the money last, you will need to budget and invest in the stock market. How comfortable is your spouse with risk?  Dealing with investments of this is complex at the best of time, imagine how stressful it would be when you’re grieving. It would be so easy to get talked into a dodgy investment by a silver-tongued banker…like a lot of people did in the last crash.

As a result, monthly income benefit will appeal to those who want to ensure that should they pass away their loved ones enjoy a simple, regular income. This will make it much easier to handle the budgets and keep on top of paying the household bills. And as you determine the term of the policy, you can make sure that the income lasts for the most appropriate length of time. This might be up until you plan to retire, or when you expect the children to be financially independent.

Risk Free Life Insurance

You can make things simpler with monthly income benefit life insurance that pays your family a sum of money every month to replace your income.

And do you want to know the best news?

It’s cheaper than lump sum life insurance.

Significantly cheaper

Let’s take a 40 year old as an example:

€1m worth of lump sum life insurance over 20 years will cost you €80 per month.
The equivalent risk free life insurance guaranteeing a monthly income of €4166 for 20 years will cost you €60pm.

If he dies tomorrow, his wife will either get a huge cheque for €1m that she’ll have to invest or €4166 paid into her bank account every month for the next 20 years.

Which would she prefer?

Which would be best for the children?

It’s better for your pocket too.

Over the lifetime of the policy, the risk free life insurance will cost €4,000 less than the equivalent amount of lump sum life insurance.

Of course, if you pass away towards the end of a life insurance policy, the full €1m will payout. If you pass with only a few years left on the monthly income policy, the payout will be much smaller.

Like the sound of it? Here’s a “deep dive” 🙄 into Monthly Income Life Insurance

What would happen to your family if you didn’t have life insurance?

what does life insurance do?

Over to you…

Are the thoughts of working out how much life insurance you need making you do this:


Then perhaps, you’d prefer I did it for you – it’s why I’m here!

Complete this financial questionnaire, and I’ll be right back with a recommendation on the type and amount of cover to suit your situation.

Chat soon.


Nick McGowan | making life insurance easier

Business All Star Accredited Life Insurance Badge

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