Skip to content

Life insurance needs calculator

By Jude Wallis

A life insurance need is the income to replace plus the debts to clear, minus what already covers them. $80,000 a year for 10 years is $800,000. Add $200,000 of debt, take off $100,000 of assets and $50,000 of existing cover, and the gap is $850,000.

Coverage need

$850,000.00

Income replacement plus debts, minus assets and cover already in force.

Income replacement
$800,000.00
Net need
$850,000.00
$
yr
$
$
$

Put this on a class page: one iframe, free, for Google Sites, Canvas, WordPress or Notion.

On this page

The formula

N=(I×y)+D−A−CN=(I \times y)+D-A-C

II is annual income to replace, yy the years to replace it for, DD debts to clear, AA assets already available, and CC cover already in force.

The income block is the biggest term

Replacing $80,000 of income for 10 years is $800,000, and it dominates every other line on the page. The two decisions inside it are the income figure and the number of years, and moving either one moves the answer far more than any debt line will.

Years is a choice about what the money is for. Until the youngest child leaves school is one answer. Until a mortgage is gone is another. Until a surviving partner reaches retirement age is a third, and the longest of the three.

Debts are added, assets are subtracted

Debts that would fall on the family go in as a positive: $200,000 of mortgage and loans here. Assets that could be used instead come off: $100,000 of savings and investments. Existing cover comes off too, whether it is a personal policy or $50,000 of group cover through an employer.

Group cover is the line most often forgotten, and it is also the least permanent, because it usually ends when the job does. Counting it reduces the calculated need today; noticing that it is tied to employment is what stops that reduction from being a surprise later.

Why the total lands above the income block

Here the need is $850,000 against an income block of $800,000. Debts added more than assets and existing cover took away. In the second example the same arithmetic runs the other way: $900,000 of income replacement becomes an $880,000 need, because $40,000 of assets and $80,000 of cover in force outweigh $100,000 of debt.

That is the useful output of the method. It is not a number to buy; it is the size of the hole between what is needed and what already exists.

What this calculation covers

This is a needs analysis in its simplest form, in today's money, with one income figure and one horizon. It answers the sizing question rather than the product question, and it is the first step in life and disability insurance planning. This is educational material, not financial advice.

Worked examples

\$80,000 of income for 10 years

Replace $80,000 of income for 10 years, clear $200,000 of debt, count $100,000 of assets and $50,000 of existing cover. What is the need?

  1. Income block: 80000×10=80000080000 \times 10 = 800000.
  2. Add debts: 800000+200000=1000000800000 + 200000 = 1000000.
  3. Take off assets and existing cover: 1000000−100000−50000=8500001000000 - 100000 - 50000 = 850000.

The need is $850,000, of which $800,000 is the income replacement block.

A longer horizon with more cover in force

Replace $60,000 for 15 years, clear $100,000 of debt, with $40,000 of assets and $80,000 of cover already in force.

  1. Income block: 60000×15=90000060000 \times 15 = 900000.
  2. Add debts and subtract the rest: 900000+100000−40000−80000=880000900000 + 100000 - 40000 - 80000 = 880000.

The need is $880,000 against a $900,000 income block, because $40,000 of assets and $80,000 of cover offset more than the $100,000 of debt.

Counting employer cover as permanent

Subtracting $50,000 of group cover lowers the calculated need today, and that cover usually ends with the job. Running the same numbers with the group line removed shows the need the day after a job change, which is a more durable figure to plan against.

Common questions

How many years of income should I replace?

Long enough for the purpose: until children are independent, until a mortgage clears, or until a partner reaches retirement age.

Should retirement savings count as assets?

Only the part that would actually be available and spent on this purpose. Counting everything understates the need.

Is this financial advice?

No. It is educational material showing how a cover need is sized arithmetically.

Keep reading

This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.