One of the first decisions you’ll need to make when arranging a relevant life policy is how much cover to take out.
There’s no single correct figure. The amount you need and the maximum amount an insurer is prepared to offer are also two different things.
Your own requirement might be based on repaying the mortgage, replacing lost income and providing for your family. Separately, insurers apply underwriting limits which can restrict the amount of cover available based on factors such as your age and remuneration.
Calculate how much cover you might need
Enter your mortgage, income, debts, existing life cover and any other financial needs below. The result is a starting point rather than a recommendation to take out a particular amount of cover.
This is a broad planning indication based on your age and annual remuneration. It is not an insurer quote or maximum. Actual cover limits and definitions of remuneration vary between insurers and are subject to underwriting.
If you’re new to relevant life insurance, start with our guide to what relevant life insurance is. You can also use our separate relevant life insurance savings calculator to compare the estimated company cost of relevant life cover with paying for life insurance personally.
How insurers calculate the maximum cover
Relevant life insurance isn’t simply a case of choosing any amount you like. Insurers have underwriting limits which determine the maximum benefit they’re prepared to offer.
These limits will typically take account of factors including:
- your age
- your remuneration
- the amount and term of the cover
- any existing protection
- the insurer’s own underwriting rules
Insurers commonly use a multiple of remuneration when assessing the maximum available cover, but the calculation varies between providers. This is why the remuneration-based figure shown by our calculator should only be treated as indicative.
Remuneration may include more than salary alone. Depending on the insurer and your circumstances, regular dividends or other elements of your remuneration may also be taken into account. See our guide to using salary and dividends as proof of income for relevant life insurance.
Should you take the maximum available?
Not necessarily. The maximum an insurer is prepared to offer isn’t the same thing as the amount your family would need.
A more useful starting question is often: how much financial support would my family need if I died unexpectedly?
That means looking at your debts, mortgage, dependants, income and existing protection. These are also among the factors highlighted by MoneyHelper when considering how much life cover may be needed.
Start with your financial commitments
One way to estimate your requirement is to work through the major financial commitments you would want the policy proceeds to help with. These might include:
- your mortgage
- other outstanding loans or debts
- children’s education
- household living costs
- replacing lost income
- funeral expenses
You might also want to include an additional amount for other family costs or commitments. These are the types of figures you can enter in the calculator above.
Think about replacing your income
For many families, the biggest financial impact of a death isn’t the mortgage itself but the loss of future income.
If your earnings currently provide a significant proportion of household income, you can consider how many years of that income you would want the cover calculation to allow for. Our calculator lets you model anything from no income replacement to 20 years.
This is deliberately a simple calculation. It doesn’t attempt to forecast inflation or investment returns over the period, so the result should be treated as a planning estimate rather than a precise assessment of future financial needs.
Consider any existing life cover
Relevant life insurance doesn’t have to provide all of your family’s protection. You may already have:
- personal life insurance
- death in service benefits
- mortgage life insurance
- one or more existing relevant life policies
Our calculator deducts the existing cover you enter from the financial need it calculates. This helps estimate the amount of additional cover required rather than simply adding another policy on top.
If you’re comparing different types of protection, see our guide to relevant life insurance vs personal life insurance. You can also read about having more than one relevant life policy.
Age and your level of cover
Age can affect both your financial requirements and the amount of cover an insurer is prepared to offer.
A director in their thirties with young children, a substantial mortgage and many years of earnings ahead may have very different protection needs from someone approaching retirement with fewer financial commitments.
Someone later in their career may have a smaller mortgage, fewer financial dependants and larger pension or investment assets. That doesn’t automatically mean they need less cover, but the purpose and amount of the protection may be different.
Age can also affect the maximum cover available and the policy term. Relevant life policies are subject to specific conditions, including rules concerning the age by which qualifying death benefits must be payable. You can read more in our guide to relevant life insurance age limits.
Don’t forget inflation
A lump sum that looks substantial today may have considerably less purchasing power in twenty or thirty years.
Some policies offer options that allow the level of cover to increase over time. The terms and effect on premiums vary, so this is something to consider when comparing quotations rather than something we’ve attempted to build into the calculator.
Worked examples
Example 1: younger director with a mortgage
A 38-year-old IT contractor receives annual remuneration of £110,000 through a limited company. They have:
- a £320,000 mortgage
- two young children
- a partner who works part time
They could use the calculator to combine the mortgage with several years of income replacement and any other family commitments, before deducting life cover they already have. This produces a needs-based estimate rather than simply selecting the maximum amount an insurer might offer.
Example 2: director approaching retirement
A 57-year-old consultant has nearly repaid the mortgage and their children have left home. They also have pension savings and other assets.
Their priorities may therefore be different. Rather than replacing decades of earnings, they might be primarily interested in leaving a lump sum for their spouse. The figures entered into the calculator would reflect those circumstances.
Will more cover mean higher premiums?
Generally, increasing the amount insured will increase the premium, although the actual cost depends on several factors. These can include:
- your age
- the amount of cover
- your health and medical history
- whether you smoke
- your occupation and lifestyle
- the policy term
The underwriting process therefore matters as well as the amount of cover requested. See our guide to how relevant life insurance underwriting works and our separate guide to relevant life insurance costs and premiums.
Can I increase my cover later?
It may be possible to increase your cover later, depending on the policy terms and your circumstances. Directors commonly review their protection after major changes such as:
- buying a new home
- getting married
- having children
- a significant change in remuneration
- taking on larger financial commitments
An increase may require further underwriting. See can you increase or decrease relevant life cover? for more detail.
Is there a minimum amount of cover?
Insurers can set minimum policy values, so the position varies by provider and product. Relevant life insurance is generally used where an employer wants to provide a meaningful level of life cover for a director or employee.
Frequently asked questions
Is relevant life insurance based on salary or dividends?
It depends on the insurer. The definition of remuneration used to assess the amount of cover available can vary, and some insurers may take regular dividends or other remuneration into account as well as salary.
Is the calculator showing how much cover I can get?
No. The main result estimates your financial need from the figures you enter. The separate remuneration-based figure is only a broad indication. The amount of relevant life cover actually available will depend on the insurer’s criteria and underwriting.
Can I take out more than one relevant life policy?
Potentially. Existing cover is likely to be relevant when further cover is considered. Read our guide to multiple relevant life policies.
What if my income changes?
Your existing level of cover won’t normally change simply because your income changes. However, a significant change in remuneration or family circumstances can be a reason to review whether the amount of protection still reflects your requirements.