Here we translate the principles of sizing the cover into steps. The method's name speaks for itself: the sum assured is made up of the mortgage, the bills (more broadly: the family's monthly expenses), and the plans. Paper, a pencil - or bring your numbers to a consultation and we can talk it through.
- Step 1: the balance of outstanding debts - this is the "non-negotiable" part of the cover.
- Step 2: the family's monthly expenses x the number of months to be replaced - this is the part that buys time.
- Step 3: the cost of major plans (education, a housing goal) - this is the part that protects the future; existing reserves should be deducted.
Step 1: the debts
List your outstanding loans: mortgage balance, personal loan, car loan. This amount is typically part of the cover - the debt doesn't disappear along with the income. The exception is a student loan: by law, this is discharged on the borrower's death, so for death benefit cover it typically doesn't need to be included. If the mortgage already has credit life cover attached, we deduct it at the end: bank vs. standalone cover.
Step 2: replacing the monthly expenses
Take the family's actual monthly expenses - bills, food, transport, school, extracurricular activities, insurance - and subtract what the remaining income would cover. The difference is the monthly shortfall. Multiply this by the number of months you want to replace: a separate article covers how many years is the right target - income replacement, how many years? - but the principle is simple: enough time for the family to get back on its feet without rushed decisions.
Step 3: the plans
Education is the most typical: for each child, estimate the cost of the remaining school years and further education. This can also include finishing a construction project already underway, or another major goal that relies on income. Sizing the plans properly can help the family's financial security hold up over the longer term too: Plan Tower principle.
Step 4: deductions and rounding
From the total, you can deduct readily accessible savings and the amount of existing cover. What remains is worth rounding to a sensible figure, and keeping it inflation-proof with indexation. The final result isn't set in stone: the numbers get refreshed at each anniversary - reviewing the sum.
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