Most New Zealanders either have no life insurance or are significantly underinsured. Working out the right amount takes 10 minutes and could be the most important calculation you ever do for your family.
A simple starting point: 10× your annual income + your mortgage balance − your savings/investments. On $100,000 salary with a $600,000 mortgage and $80,000 in savings: that's $1,520,000 of cover. Adjust down if your children are nearly independent or your mortgage is nearly paid. Adjust up if you have significant debt or a non-working partner.
Why Getting the Amount Right Matters
Too little cover: your family can’t pay off the mortgage, maintain their lifestyle, or fund your children’s futures.
Too much cover: you’re paying more in premiums than necessary — money better used elsewhere.
The right amount sits between “enough to be genuinely protected” and “not paying for more than you need.”
Step-by-Step Calculation
Step 1: Income Replacement
Your family will lose your income. They need enough invested to replace it indefinitely (or for a defined period).
Method A — Years of income: Annual income × number of years of support needed
Example: $90,000 × 15 years = $1,350,000
Method B — Invested income (more precise): If the lump sum is invested at 5% p.a., it generates income indefinitely. Required lump sum = annual income needed ÷ 0.05
Example: $80,000/year ÷ 0.05 = $1,600,000 (invested at 5% generates $80,000/year forever)
Most advisers use a hybrid: 10× annual income as a standard starting point.
Step 2: Mortgage and Debt
Add your outstanding mortgage balance and any significant debts (personal loans, etc.) so your family doesn’t lose the home.
Example: $550,000 mortgage + $20,000 personal loan = $570,000
Step 3: Future Large Expenses
Add any large future expenses you’d want covered:
- Children’s university fees: $25,000–$50,000 per child
- Children’s living costs until independence: varies
Example: 2 children, $40,000 each = $80,000
Step 4: Subtract Existing Assets
Subtract what your family already has (reduces the insurance need):
- Savings and investments
- KiwiSaver balance (accessible at 65 or on death)
- Other insurance (partner’s life cover, group life through employer)
- ACC entitlements (accident death — ACC pays a survivor’s grant, but it’s modest)
Example: $120,000 in investments + $50,000 KiwiSaver = $170,000
Step 5: Total
Step 1 + Step 2 + Step 3 − Step 4 = your life insurance target
NZ Example Calculations
Example 1: Young family, Auckland, one income
- Salary: $110,000
- Mortgage: $750,000
- 2 young children
- Savings: $80,000, KiwiSaver: $60,000
- Non-working partner
| Component | Amount |
|---|---|
| Income replacement (10×) | $1,100,000 |
| Mortgage payoff | $750,000 |
| Children’s futures | $80,000 |
| Subtract savings/KS | −$140,000 |
| Total target | $1,790,000 |
Example 2: Dual income couple, no children, Wellington
- Salary: $95,000
- Mortgage: $600,000
- Both working, partner earns $80,000
- Savings: $150,000
| Component | Amount |
|---|---|
| Income replacement (5× — partner earns income) | $475,000 |
| Mortgage payoff (shared) | $300,000 |
| Subtract savings | −$150,000 |
| Total target | $625,000 |
Lower because partner can continue working and contributes to the mortgage.
Example 3: Single, renting, no dependants
- Life insurance need: minimal
- Cover the mortgage if you had one; otherwise, just funeral costs ($10,000–$20,000)
- Focus budget on income protection instead
Adjusting for Your Situation
Increase cover if:
- Partner doesn’t work or works part-time
- You have young children (long dependency period)
- Large mortgage relative to income
- Business debt personally guaranteed
Decrease cover if:
- Children are nearly independent (18+)
- Mortgage nearly paid off
- Substantial existing savings and investments
- Both partners earn similar incomes
Review every 3–5 years or after major life events: buying a home, having children, significant salary increase, mortgage reduction.
Group Life Insurance Through Your Employer
Many NZ employers provide group life insurance — typically 1–3× annual salary — as a benefit. This is free to you (employer-funded). Check your employment agreement or ask HR.
If you have $200,000 of group cover and need $1,500,000 total: buy $1,300,000 of personal cover.
Caution: Group cover typically ends when you leave the employer. Personal insurance is portable — it stays with you regardless of employment.
Frequently Asked Questions
Is 10× income really right for me? It’s a starting point, not a rule. Use the step-by-step calculation above for a number specific to your situation. High-debt, single-income families with young children often need 15–20× income. Low-debt, dual-income couples with older children may need only 5–8×.
Do I need less cover as my mortgage shrinks? Yes — as your mortgage reduces and your savings grow, your insurance need decreases. Review and reduce cover periodically to avoid overpaying.
What if I can’t afford the ideal amount? Some cover is better than none. If the ideal amount is too expensive, prioritise: cover the mortgage first, then income replacement. Step up coverage as your income grows.