It's the first question everyone asks about life insurance, and the honest answer is: it depends on your situation. But "it depends" isn't helpful on its own, so this guide walks through the same practical method we use with clients to arrive at an actual number.
One thing worth saying upfront: the goal is the right amount of cover, not the maximum amount. Too little cover defeats the purpose. Too much means paying premiums for protection you don't need. Both are common, and both are avoidable.
Start With What the Money Needs to Do
Life insurance pays a lump sum to your family if you pass away or are diagnosed with a terminal illness. So the question "how much do I need?" really means "what would my family need money for if I weren't here?" For most New Zealand families, it comes down to four things:
1. Clearing debt
The mortgage is usually the big one. If your family could stay in the home with the loan fully repaid, you remove the single largest financial pressure at the worst possible time. Add any other debts: car loans, credit cards, personal loans, business borrowing you've guaranteed.
2. Replacing your income
Your family doesn't just need debts cleared; they need to live. A common approach is to provide enough to replace your after-tax income for a set number of years, often until the youngest child finishes school or your partner could realistically adjust. Five to ten years of income replacement is a typical range, but the right figure depends on your partner's earning capacity, childcare needs, and other support available.
3. Children's future costs
If you want to make specific provision for education or supporting children into adulthood, add an allowance for it. This is a personal choice rather than a necessity, and it's one of the levers you can adjust to balance cover against premium cost.
4. Final expenses
Funeral costs in New Zealand commonly run to $10,000 or more, and there can be legal and estate administration costs on top. It's a small component compared to the others, but it arrives first.
Then Subtract What You Already Have
Cover isn't needed for needs that are already funded. Subtract:
- Savings and investments your family could draw on
- KiwiSaver balances, which form part of your estate
- Existing life cover, including any group cover through your employer (check the amount and whether it ends when you leave the job)
- A partner's income, to the extent it would realistically continue
What's left after subtracting assets from needs is the gap that life insurance should fill.
A worked example
A couple with two young children, one main income of $85,000 after tax, a $450,000 mortgage, and $60,000 in savings and KiwiSaver might calculate:
| Clear the mortgage and debts | $460,000 |
| Income replacement (6 years × $85,000) | $510,000 |
| Final expenses | $15,000 |
| Less: savings and KiwiSaver | −$60,000 |
| Indicative cover needed | $925,000 |
This is an illustration only, not advice. Your own numbers, and the assumptions behind them, will be different.
Why Rules of Thumb Fall Short
You'll often hear shortcuts like "ten times your income." These are fine as a sanity check, but they ignore the things that actually drive your number: whether you rent or own, the size of your mortgage, how many dependants you have and their ages, your partner's income, and what you've already saved. Two people earning the same salary can have genuinely different needs, sometimes by hundreds of thousands of dollars in either direction.
Research by the Financial Services Council has repeatedly found that many New Zealanders are underinsured relative to their needs. In our experience the opposite problem also exists: people sold more cover than their situation justifies. A proper needs analysis protects you from both.
Keeping the Premium Affordable
Once you have a target figure, there are several ways to keep the cost manageable:
- Structure matters. Stepped premiums start cheaper and rise with age; level premiums cost more initially but are fixed for an agreed term. The better choice depends on how long you expect to hold the cover.
- Cover can reduce over time. As your mortgage shrinks and children become independent, your needs typically fall. Reviewing cover every few years means you're not paying for protection you no longer need.
- Combining covers strategically. Life insurance is often arranged alongside income protection and trauma cover. Getting the mix right usually matters more than maximising any single cover.
When to Review Your Number
Your life insurance needs are not static. The main triggers for a review are:
- Buying a home or increasing the mortgage
- Getting married or entering a long-term relationship
- Having children
- A significant change in income, up or down
- Starting or selling a business
- Paying off major debt, or children becoming financially independent (your needs may go down)
The Bottom Line
The right amount of life insurance is the gap between what your family would need and what they'd already have. For most people that calculation takes less than half an hour with an adviser, and it produces a number you can actually justify, rather than a guess.
If you'd like help running your own numbers, our life insurance advice service is independent and free to use. We compare policies from across the New Zealand market and recommend what genuinely fits, and we'll tell you honestly if you already have enough cover.
Want Your Own Number?
A free 30-minute consultation is enough to run a proper needs analysis for your family. No pressure, no obligation.
Call 021 187 4926