Step one: list the debts that would need clearing
Begin with the biggest number on your list, which for most homeowners is the mortgage. Find the outstanding balance on your latest statement and note whether it is a repayment or interest-only loan. A repayment balance shrinks over time. An interest-only balance stays the same until the end of the term, so the full amount needs covering throughout.
Then add anything else your family would have to settle or keep paying: car finance, personal loans, credit cards and any money you have borrowed from relatives. You do not need to count every small bill. The aim is to remove the debts that would weigh on a household living on one income instead of two.
- Mortgage balance (and whether it is repayment or interest-only)
- Car finance and personal loans
- Credit card balances you carry month to month
- Any secured loans or borrowing against the house
Step two: replace the income your family relies on
Clearing debts is only half the job. Your family still needs to buy food, run a car, heat the house and pay for everyday life. Work out how much of your take-home pay goes on the household each year, leaving out the mortgage you have already counted.
Now choose how many years that support should last. Parents often pick the number of years until their youngest child finishes school or leaves home. Multiply the yearly figure by that number of years. If a lump sum feels hard to picture, family income benefit pays the same support as a monthly amount for the rest of the policy term instead.
Step three: add childcare and funeral costs
If you look after children for part of the week, your partner would need to pay someone else to do it, or cut back their own working hours. Think about nursery, after-school clubs and holiday care until your children are old enough not to need it. This matters just as much for a parent who stays at home as for one who earns.
A funeral is the last item to include. Costs vary a lot depending on the type of service and where you live, so pick a figure you feel comfortable with after looking at local prices. Some people also add a sum for a specific wish, such as helping a child through university.
Step four: take away the cover you already have
Many employers offer death in service, which pays a multiple of your salary if you die while you work for them. Check your contract or staff handbook for the multiple. Remember that this benefit usually ends the day you leave the job, so it can be a shaky base for long-term plans.
Look out for older life policies, mortgage cover you took out years ago and any pension that pays a lump sum on death. Subtract these from your total. Savings can count as well, but your family might prefer to keep them as a safety net instead of spending them on the mortgage.
A worked example using invented figures
Here is the method in action. The numbers are made up for illustration only and are not a guide to what you should hold. Picture a couple with one young child. Their mortgage balance is £150,000 and they have £8,000 left on a car loan. They want £20,000 a year of support for ten years, which comes to £200,000. They add £30,000 for childcare and £5,000 for a funeral.
That adds up to £393,000. One partner has death in service worth £90,000, so they take that away and reach £303,000. They round down to £300,000 and then talk through whether part of it should be family income benefit and whether the mortgage part should decrease over time.
How Hi Tomorrow helps you settle on a figure
Our advisers go through these steps with you on the phone, using your own numbers. We ask about the things people tend to forget, like childcare during school holidays or a death in service benefit that would vanish if you changed jobs. Then we show you how different amounts and policy types compare across the insurers on our panel.
You stay in charge of the final number. If the ideal amount stretches your budget, we can look at a mix, such as decreasing cover for the mortgage alongside a smaller level policy for the family. Advice on personal protection costs you nothing, because the insurer pays us commission.