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How to determine the right amount of life insurance

Are you unsure about how much life insurance you might need? Learn how to make an informed decision about your future and that of your family.

7 min to read

In general, life insurance is a contract between a provider and a policyholder. It guarantees payment by the insurer of a sum of money (‘sum insured’) to one or more named beneficiaries when the insured person dies. In exchange for this cover, the policyholder pays the provider what are known as ‘premiums’.

Life insurance cover offers peace of mind by ensuring that you or your family’s financial wellbeing is safe, even after you pass away. Life insurance is an important part of any financial plan, however, many people struggle with determining how much cover they need and what type of policy to choose.

In this article, we will explore the most common questions about life insurance, including how to calculate your needs, when to review your policy, and details on what options are available in New Zealand.


Learn more about different types of insurance from a licenced financial adviser and see what's best for your circumstances.

Health | Life | Trauma | Total and Permanent Disability | Income Protection

Do I need life insurance?

If you have dependants, want to protect your income and your family’s financial security, or think you’ll require additional financial support in case of terminal illness, then purchasing life insurance is imperative. Proceeds from life insurance can be used for paying off debts, covering living expenses, or funding future plans - like a child's education. This safeguard can relieve the burden of loss and provide comfort to loved ones during difficult times.

Life insurance can also give extra protection by offering add-on ‘benefits’ or policy features which cover certain conditions, such as critical (terminal) illness, and accidental death.

Life insurance is a promise to secure your loved ones' future on death. Here's why it matters:

    • Financial security: Life insurance provides a financial backup for your family on death.
    • Debt protection: It can help cover debts, rents, mortgages, and loans, relieving your loved ones from the burden.
    • Income replacement: Helps replace the income of the deceased life assured to enable the family to maintain a similar lifestyle to that if the life assured had continued working until retirement.
    • Education support: Ensures your children's education remains uninterrupted, no matter what.
    • Funeral costs: Eases the financial strain by covering funeral expenses.
    • Peace of mind: Knowing that your loved ones are taken care of even after you're gone offers invaluable peace of mind.

life insurance how much need

How much life insurance do I need?

NB: The following information is for general purposes only, and not intended as financial advice. Please contact a member of our Policywise team for more specific assistance.

One of the biggest questions is, "How much life insurance do I really need?" A number of factors influence this decision, and different methods can help calculate the answer. Let’s first have a look at how to calculate an appropriate amount of cover for you. Commonly, this is determined through the DIME formula, income multiple process, or expenses-based approach.

  • DIME formula. DIME stands for debt, income, mortgage, and education. To figure out how much cover you need, simply add up all your expenses under these categories.
  • Income multiple. This method requires you to multiply your annual income by a certain factor (usually between 5-10) to arrive at your cover amount.
  • Expenses-based. Under this approach, add up all your estimated expenses for a certain period of time (such as 5 or 10 years) to reach your cover amount.

You should consider other factors in determining your level of cover, including:

  • Age. Generally, the younger you are, the more cover you need, as you have more time left in your working life to support dependants and pay off debts.
  • Lifestyle. If you have expensive hobbies or travel frequently, consider a higher cover to ensure your loved ones can maintain their quality of life.
  • Dependants. If you have children or other dependants, you will likely need more cover to provide for them in the event of your passing.
  • Debts. If you have outstanding debts, like a mortgage or car loan, think about including those in your cover amount.
  • Future plans. Are you planning to pay for your children's tertiary education or retire early? Consider those expenses when determining your cover.

If you would like some help to understand more about how to calculate the right amount of life insurance and get it all in place with a quality insurer, then book a 5-minute callback with Policywise. We can also offer advice if you’d like to review your insurance plan or compare other options for consideration. Our service is fast and free, and we work with all leading health insurers in New Zealand.

What type of life insurance should I get?

Life insurance is a cost-effective plan that offers cover for a specific term but does not accumulate cash value. Policyholders pay premiums throughout, and if they pass away during the term, their beneficiary receives a death benefit. It is an excellent choice for those who want to provide financial security for their loved ones during a specific time, such as when they have dependants or outstanding debts. Term life insurance has two sub-types offered in New Zealand:

  • Level life insurance: A type of life insurance that according to your chosen sum insured, provides a fixed (‘level’) premium amount of cover for a set period of time. Guarantees a consistent payout throughout the term without any decrease in premiums, but at a higher cost compared to other policies; and
  • Stepped life insurance: A type of life insurance that according to your chosen sum insured, provides a premium amount of cover that is recalculated each year based on your age at your policy anniversary, meaning your premium will increase yearly (‘stepped’), but usually starts with lower premiums than level life insurance. There will be a point in the future where stepped premiums cost more than level insurance premiums.

do i need life insurance

What do I need for life insurance?

To obtain a life insurance policy, you must apply with an experienced insurance broker that has good customer reviews like Policywise. The process will typically require you to disclose personal and family medical history, beneficiary information, and any pre-existing medical conditions. Medical exam and test results are often requested. Additionally, insurance providers may ask you about your general lifestyle, as this can impact your health and potential risk to the insurer. Finally, you will need to present proof of your identity.


Life insurance is critical for the financial wellbeing of your loved ones and for your peace of mind. The amount of life insurance cover you need depends on your circumstances, but there are ways to determine the right amount for you. Further, it is important to review and adjust your cover regularly as circumstances change over time.


How much does life insurance cost?

The cost of life insurance depends on factors such as your age, health, lifestyle, and cover amount.

Is life insurance an investment?

The main purpose of life insurance is as an investment in financial protection for your loved ones in the case of unexpected events, such as death.

Do I need advice?

The decision to purchase life insurance is entirely yours. However, it is always recommended to seek professional advice from an insurance specialist such as Policywise, a 100% free service which tells you which health, life, and disability insurance provider best fits your needs.

How long does the application process take?

It can take anywhere between 2 weeks and 6 months, depending on how fast you can get all the required information to the insurer. If the information is complete and there are no issues, the policy may be activated relatively quickly. However, applications that require a more detailed evaluation may take longer, depending on the circumstances.

How is a claim made?

You or your beneficiary will need to contact your insurance broker or insurer direct and provide information on your policy. You may be required to fill out some forms and give information necessary for the evaluation of the claim. If you have taken out your insurance through Policywise, we can help you negotiate a positive outcome on your claim.

Policywise: your partner in making wise insurance decisions

Policywise is a 100% free service which tells you which health, life, and disability insurance provider best fits your needs. We offer fast, comprehensive, and easy-to-understand comparisons of all leading providers, and a simple summary clearly recommending which insurer is best for your situation.

Not all insurance policies are the same. Policywise can help you sort out the duds, avoid the lemons, understand the fine print and exclusions, and get the right insurance for you and your family.

We make the important decision of where to buy your insurance super easy. We’ll answer your questions, provide experienced advice, quotes, and comparisons, and manage all the back and forth throughout the application process. Taking out your cover through us means you'll have our lifetime support and claims advocacy, and we'll help you negotiate a positive outcome at claim time. We can also take care of lodging any claims on your behalf and back you up if the going gets tough.

Check out the reviews on our homepage for how other New Zealanders have found our service because now is the time to get your life insurance sorted. Give your family or someone you love the most outstanding financial support possible. Book a 5-minute callback with Policywise today; our service is fast and free.

Disclaimer: This article is for general information only. Nothing in this blog or on this website is intended as medical, dietary, or financial advice. Although Policywise aims to update our content regularly, you are advised to consult a financial adviser, health professional, or an appropriate specialist before acting on any information herein. They can factor in your personal circumstances or preferences and help guide your decision-making process.

Quickly find the cover that’s best for you

Policywise tells you which health, life or disability insurance best matches your circumstances, 100% free. Talk to one of our insurance advisers to find out which health or life insurance is best for throat cancer, and other serious illnesses.


Investopedia. Fontinelle, A and Battle, A. (2022). Life Insurance: What It Is, How It Works, and How To Buy a Policy. Retrieved 20/03/2023

Forbes. Danise, A. (2023). How Much Life Insurance Do I Need? Retrieved 20/03/ 2023

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