The most personal question in sizing the cover: for how many years should the lost income be replaced? There's no number carved in stone - but there are a few reference points from which a family can find its own answer. The goal isn't a lifelong annuity, but covering the transition period: enough years for the family to find a new balance, without forced decisions.
- The cover buys time: enough years for the family to get back on its feet without rushing.
- A common starting point is covering several years' worth of net shortfall - a longer span for young children, a shorter one as children become independent.
- The other earner's situation is a key factor: their income, their room to maneuver in the labor market, and their capacity to cope.
What determines the number of years?
- The children's ages: the younger they are, the longer the period that needs protecting - many families plan through until the youngest child becomes independent.
- The other earner's room to maneuver: can they take on more work, do they have a trade or profession, how flexible is the labor market - and how much of a load can they bear alongside raising the children.
- How flexible the expenses are: how large is the fixed portion of the budget (mortgage, housing), and how much can reasonably be cut if needed.
- Reserves: existing savings can cover months or years - shortening the replacement period needed by that much.
Why isn't "the more, the better"?
Because cover has a cost, and the premium for an oversized amount burdens the family's current budget - for years. Good sizing is a balance: a transition period long enough that panic decisions (selling the home, changing schools) aren't necessary, but no longer than the situation warrants. On the traps of both extremes: too little and too much.
The years and the tower
In the language of the Plan Tower principle: income replacement aims to help cover the cost of housing and everyday life for the chosen amount over a longer period, while a separate item protects the education floor. This way, the family sets itself up not for mere survival, but to carry on with its plans.
How does this become a number?
Step 2 of the method article calculates exactly this: monthly shortfall x number of months. It is worth calibrating the number of years to your family's situation - I assess the need, inform you about the options, and the decision is yours. It is worth revisiting the result at the renewal date, because the years pass and the period still to be protected gets shorter: review.
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