This is the question people most want answered and the one most often answered badly — usually with a rule of thumb presented as arithmetic.
What are the two standard methods?
Needs analysis, which adds up what your family would have to deal with. And human life value, which values what your future earnings are worth today.
They answer different questions and routinely produce different numbers. Neither is wrong; they are measuring different things.
Needs analysis asks: if your income stopped, what would have to be paid for? Income replaced, debts cleared, goals funded — less savings and cover that already exist.
Human life value asks: what is the economic value of your remaining working life, discounted to today?
Most people find needs analysis more useful, because it accounts for liabilities and existing assets, and because its inputs are things you actually know.
How does needs analysis work?
Four things added, two subtracted.
Add the income you would want replaced, multiplied by the number of years you would want it replaced for. Add the debts you would want cleared. Add anything you want funded regardless — an education, a wedding.
Then subtract savings and investments your family could genuinely reach, and life cover you already hold.
What remains is a gap. It is not a recommendation, and it is only as good as the figures you put in — which is precisely why it is worth doing with your own numbers rather than accepting someone else’s estimate.
Why is the income multiple only a sanity check?
Because it knows nothing about you beyond what you earn.
Two people on identical incomes can need very different amounts of cover. One has no dependants, no mortgage and substantial savings. The other has three children, a home loan with two decades left and nothing set aside. A multiple of income cannot distinguish them.
What the benchmark is genuinely good for is noticing that an answer is surprising. If your needs-based figure comes out at three times income, you have probably understated something. If it comes out at thirty, check the years and the debts.
How many years of income should you replace?
Until the people depending on you would not need it any more — which is a judgment, not a formula.
Common anchors: until the youngest child finishes education, until the mortgage ends, until a partner reaches their own retirement. Pick the one that matches what you are actually protecting against.
Longer is the safer error. Under-replacing means the gap reappears at exactly the point everyone assumed it had been dealt with.
What about inflation?
It matters, and most simple calculations ignore it.
Money needed in fifteen years buys less than the same money today. Some calculations handle this by discounting future income at an assumed return; others simply do not adjust at all, which is more conservative and easier to check.
Being aware of which one you have done is more important than which you choose. A method that produces a smaller number by assuming investment returns is making an assumption on your behalf.
What does the insurer do with your number?
Caps it against your income, and assesses whether the rest of the application supports it.
Cover is issued as a multiple of annual earnings, higher for younger applicants and falling with age. So a needs-based figure can legitimately exceed what any insurer will issue — in which case the conversation becomes about how to close the remainder, not about pretending the gap is smaller.
Above a certain amount relative to income and age, the insurer arranges a medical examination before issuing. That is a process step, not an obstacle.