This is one of the most common questions we hear — and one of the hardest to answer with a single number. The right amount of life insurance depends on your specific situation: your debts, your family's needs, your existing savings, and what kind of life you'd want them to have without your income.
The quick answer
A commonly used rule of thumb is 8 to 10 times your annual income. If you earn $80,000 a year, that puts you in the $640,000 to $800,000 range.
But rules of thumb are just starting points — your real number might be higher or lower depending on your mortgage, family situation, and existing assets. The rest of this article helps you work out what's right for you.
Method 1: The income replacement approach
The simplest calculation method. Work out how many years of income your family would need to replace if you weren't around:
- How old are your children? How many years until they're financially independent?
- How many years of mortgage payments remain?
- Would your partner need to reduce work hours for childcare?
Multiply your annual income by the number of years your family would need support. For example: $80,000 × 10 years = $800,000. This is a solid starting point for most families.
💡 Good to know
Don't forget to account for inflation. $80,000 per year now won't buy the same lifestyle in 10 years. Many advisers suggest adding 10–20% to your calculation to account for this, or choosing a policy with a "future insurability" option that lets you increase cover later without new health checks.
Method 2: The needs analysis
A more precise approach. Add up your family's actual financial needs, then subtract what they'd already have access to:
Add up
- Outstanding mortgage: $450,000
- Other debts (car loan, personal loans, credit cards): $30,000
- Children's future education costs: $50,000 per child for tertiary
- Living expenses for your family for 5–10 years: $60,000/year × 7 years = $420,000
- Funeral and estate costs: $15,000
Total needs: $1,015,000
Subtract
- Existing savings and investments
- KiwiSaver balance your family could access
- Any existing life cover (employer group policy, etc.)
- Partner's income capacity over the same period
The gap between what your family would need and what they'd have access to is roughly how much life insurance you should carry.
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Factors most Kiwis forget
When calculating your life insurance needs, these are the things that catch people out:
- ACC only covers accidental death — and provides a maximum lump sum of approximately $100,000 (plus weekly compensation to dependants). It does NOT cover death from illness, which is far more common.
- KiwiSaver isn't accessible immediately — there are specific rules around early withdrawal for hardship. Don't rely on it as an instant safety net.
- Your partner's ability to work might change — they may need to reduce hours for childcare, especially with younger children.
- Funeral costs in NZ average $8,000 to $15,000 — and they're due within weeks.
- Debt doesn't disappear — jointly-held debt (especially the mortgage) becomes the surviving partner's sole responsibility.
Not sure where you stand? Our free check helps you figure out what cover you might need.
Check my cover →How much is enough at different life stages?
Your life insurance needs change as your situation evolves:
Young and single, no dependants
Minimal need — perhaps enough to cover any debts and funeral costs ($50,000–$100,000). But life insurance is cheapest when you're young and healthy, so consider locking in cover now. A $500,000 policy at age 25 costs a fraction of what it would at 45.
Couple, no kids, with a mortgage
Enough to cover the mortgage so the surviving partner isn't forced to sell the home. Typically $300,000–$600,000 depending on your mortgage balance.
Young family with children
This is your peak need. Mortgage plus income replacement plus education costs. For most Kiwi families, this means $500,000 to $1.5 million. It sounds like a lot, but this is when your family is most financially vulnerable.
Older family, kids leaving home
Reducing need. The mortgage is (hopefully) smaller, children are becoming independent. You may be able to reduce your cover to $200,000–$500,000 — just enough to clear the remaining mortgage and provide a buffer.
Approaching retirement
If your mortgage is paid off, children are independent, and you have retirement savings, your need for life insurance may be minimal. Some people cancel their cover entirely at this stage. Others keep a smaller amount for estate planning or funeral costs.
What if I can't afford the "right" amount?
Getting some cover is always better than no cover. If the ideal amount is $800,000 but you can only afford $400,000 right now, take the $400,000. You can always increase it later (subject to your health at that time).
Ways to make life insurance more affordable:
- Stepped premiums — Start cheaper and increase with age. Good when budget is tight now.
- Higher excess on other insurance products to free up budget for life cover.
- Bundle policies with one insurer for multi-policy discounts.
- Prioritise — Life insurance and income protection first, then health and trauma when budget allows.
Next steps
Start with a rough calculation using one of the methods above. Even a back-of-the-envelope number gives you a sense of where you stand.
Then get a professional check. An independent insurance adviser can run a detailed needs analysis tailored to your exact situation — at no cost to you (they're paid by the insurer, not by you). They'll also compare policies across multiple insurers to find the best fit.
Our free 2-minute check is a great starting point. It gives you an overview of where you might have gaps and connects you with a licensed adviser if you'd like to take the next step.