The short version: add up your debts, the income your family would need for a set number of years, and any one-off costs. Then subtract what you already have, like savings, KiwiSaver and cover through work.
Step 1: Add up what would need paying
- Debts: mortgage, car loans, personal loans, credit cards.
- Income replacement: how much your household would need each year without your income, and for how long. Many families pick the number of years until their youngest child is independent.
- One-off costs: funeral costs, childcare, education, or time off work for your partner.
Step 2: Take away what you already have
- Savings and investments your family could use.
- KiwiSaver. It's paid to your estate if you die.
- Any existing life cover, including cover through work or a bank.
A worked example
These numbers are made up to show the method. They're not a recommendation.
| Mortgage | $450,000 |
| Car loan | $15,000 |
| Income support: $60,000 a year for 5 years | $300,000 |
| One-off costs | $20,000 |
| Less savings | −$30,000 |
| Less KiwiSaver | −$40,000 |
| Cover needed (roughly) | $715,000 |
Life cover is only part of the picture
Life insurance pays out if you die, or with most policies if you're diagnosed with a terminal illness. But ACC only covers accidents, not illness. Many people are more likely to need cover for being too sick to work than for dying young. That's where these come in:
- Income protection: a monthly benefit if illness or injury stops you working.
- Trauma cover: a lump sum if you're diagnosed with a serious condition such as some cancers, heart attack or stroke.
- Mortgage protection: covers mortgage repayments for a set period if you can't work.
Common mistakes
- Setting it and forgetting it. Cover set up with your first mortgage may not fit after kids, a bigger loan, or years of repayments.
- Only insuring the main earner. If a stay-at-home parent died, the cost of childcare and lost work time can be large.
- Relying on cover tied to a bank loan. Check what happens to it if you refinance or change banks.
Want a second opinion on your number?
A licensed adviser can work through it with you in a free 15-minute chat, whether you have cover already or not.
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