How much life cover do you need in New Zealand?
There is no correct number, and anyone who gives you one without knowing your situation is guessing. The common rule of thumb adds the debts that would have to be cleared, the income you want replaced, and one-off costs, then subtracts what you already have. Here it is line by line.
Updated 2026-09-16 · last checked against its sources on that date
Written by Life Insurance NZ. No personal byline: the organisation is the author.How do you work out how much life cover you need?
Add the debts that would have to be cleared, the after-tax income you want replaced multiplied by the years you want it replaced for, and any one-off costs. Then subtract savings, KiwiSaver and the cover you already hold. What is left is the rule-of-thumb figure, and it is one sum.
It is sometimes called DIME — debt, income, mortgage, education. It is popular because it is simple enough to check on the back of an envelope, not because it is right for anybody in particular.
- Debts that would have to be cleared. The mortgage balance still owing, plus car loans, credit cards, and anything else that does not disappear.
- Income to replace. An annual after-tax figure, multiplied by the number of years you want it replaced for. The number of years is entirely your choice and nobody can pick it for you.
- One-off costs. A funeral, education, childcare, adapting a house, clearing a business loan. Whatever your household would actually face.
- Less what you already have. Savings, investments, KiwiSaver, and any life cover you already hold — including cover through an employer or attached to a mortgage.
Three hypothetical households
These are made-up examples, not New Zealand averages and not typical households. Every figure in them was chosen to make the arithmetic legible. Do not read your own situation into them.
| Household A | Household B | Household C | |
|---|---|---|---|
| Mortgage owing | $480,000 | $260,000 | $0 |
| Other debts | $20,000 | $0 | $8,000 |
| Income to replace | $70,000 × 10 yrs | $55,000 × 5 yrs | $90,000 × 15 yrs |
| One-off costs | $30,000 | $15,000 | $60,000 |
| Less savings and KiwiSaver | −$60,000 | −$120,000 | −$200,000 |
| Less existing cover | −$100,000 | −$0 | −$300,000 |
| Rule of thumb gives | $1,070,000 | $430,000 | $918,000 |
Notice what is doing the work. In all three, the income line is the biggest single number, and the number of years is the assumption nobody can check. Change ten years to five in household A and the figure drops by $350,000. That sensitivity is the honest argument for showing the working rather than printing one number.
What does the rule of thumb get wrong?
It ignores inflation, investment returns and tax, and it treats a single lump sum as a stand-in for a monthly need that income protection is built for. It knows nothing about your household, and it cannot tell you whether you need cover at all. Five gaps, set out below.
- It ignores inflation and returns. A lump sum meant to last fifteen years will not hold its value, and it might also earn something. Neither is in the formula.
- It ignores tax, on the payout, on income it generates, and on an estate.
- It treats a lump sum as a stand-in for a monthly need. Replacing income is what income protection does, month by month, while you are alive. A life policy pays once, on death. They are not interchangeable.
- It knows nothing about you. Whether a partner earns, who would care for children, what an employer's cover already does, whether a relationship property agreement applies, what ACC would pay for an injury.
- It cannot tell you whether you need cover at all. That is a question about your situation, and only a licensed financial adviser can answer it.
What should you do with the number?
Treat it as a starting point for a conversation, not a target. It tells you the order of magnitude and shows you which assumption is driving it. Change the years, change the income, change what you already hold, and watch the figure move: that is more useful than the figure itself.
Questions
Is ten times your income a good rule?
It is a different rule of thumb, and it is simpler still. It has the same weakness as this one: it produces a number without reference to your debts, your savings, your household or what you are trying to achieve. We use the ledger version because you can at least see which line is driving the answer.
Should I include my KiwiSaver?
The calculator lets you, and whether you should is your call. The argument for is that it is money your household would have. The argument against is that it is earmarked for a retirement that still has to be paid for. We do not take a side, because taking a side about your money is advice.
How many years of income should I replace?
There is no answer to that which is true for everybody, so we do not give one. People commonly choose the years until a youngest child finishes school, or until the mortgage would be gone. A licensed adviser will work through it with you properly.
Sources
Read on 2026-09-16. If a source and this page disagree, the source is right.
Related
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