How Much Life Insurance Do You Actually Need in NZ? (2026 Sum-Insured Calculation)

A real NZ method to size your life insurance sum insured — debts to clear, income to replace, children's costs and final expenses, minus existing cover, KiwiSaver and ACC. This is what an adviser's needs analysis actually does, and why 'ten times your salary' falls short.

This article is general information only and is not personalised financial advice. It does not take into account your particular financial situation, goals or needs. Before acting, consider whether it's right for you and seek advice tailored to your circumstances.

There is no single right figure for life cover, and the popular shortcut — "ten times your salary" — is a guess dressed up as a rule. A proper sum insured is built from your family's actual needs: the debts that would have to be cleared, the income that would have to be replaced, the cost of raising children, and final expenses, less what your household already has to fall back on. This guide walks through that calculation the way a New Zealand adviser's needs analysis does.

TL;DR: A sound life insurance sum insured is debts to clear + income to replace + children's and education costs + final expenses − existing assets and cover (KiwiSaver, savings, ACC where it applies). That gives a needs-based number rather than a flat salary multiple. Sorted recommends this approach over "ten times salary." ⁴ A common gap: ACC only covers death from accident, not illness, so it can't be relied on to fill the income hole. ³

Why "ten times your salary" is the wrong way to size life cover

Salary multiples are popular because they're easy. The trouble is they ignore almost everything that actually drives the number. Two people earning the same income can need wildly different amounts of cover — one with a large mortgage and three young children, the other mortgage-free with grown kids and a paid-off house.

A multiple tells you nothing about your debts, how many years of income your family would need, what childcare would cost, or what you already have set aside. It can leave one household badly short and another paying for cover it doesn't need. Sorted, the Retirement Commission's free money guidance, recommends sizing life cover by adding up what your family would actually need — clearing debt, covering funeral costs, and replacing income for a set number of years — rather than applying a flat multiple. ⁴

This matters because New Zealand households are widely underinsured. FSC research found around 70% of New Zealanders are underinsured for life and health cover, and only about a third hold life or health insurance at all — leaving NZ one of the most underinsured nations in the OECD. ¹ Sizing the number properly is the difference between cover that does its job and cover that quietly falls short.

What does a proper sum-insured calculation include in NZ?

A needs analysis builds the number from the ground up. The components are consistent even though the figures are personal:

The first four lines build up the need; the last line takes away what your household already has. The result is the gap a life policy is there to fill — your sum insured.

Figure — Building your life cover sum insured (NZ needs analysis): a stacked total of debts to clear, income to replace, children and education costs, and final expenses, less existing assets and cover (KiwiSaver, savings, ACC where it applies), equals the sum insured. Source: adviser needs-analysis framework.

Whether any individual policy pays a claim depends on the terms, conditions, exclusions, stand-down periods and underwriting of that policy, and on your disclosure. This is a summary of how the number is built — always read the policy wording or product disclosure statement.

How do you work out income replacement for your family?

Income replacement is usually the largest moving part of the calculation, and the one salary multiples handle worst. The idea is simple: if the income stopped, how much would your family need, and for how long?

Two questions shape it:

• How much income needs replacing? Often it's not the full salary — some spending stops, and a surviving partner may keep working. Many people size this to the share of household income that would genuinely need covering.
• For how many years? A common approach is to replace income until the youngest child is independent, or until the mortgage is gone and the household can stand on one income. The longer the support period, the larger the lump sum.

It's worth remembering NZ Superannuation provides a base income from age 65, which reduces how many years of private income replacement a family needs to fund before then. As at 22 January 2025 (1 April 2024 rates), a single person living alone received $519.47 per week after tax on the M code, and a couple who both qualify received $799.18 per week after tax combined. ⁵ NZ Super rates are set by the Government and change each 1 April, so these are a snapshot, not a fixed figure.

ACC is the other piece people assume will help, and it's where a lot of plans come unstuck. ACC only covers death and incapacity caused by accident or injury — not death or illness from sickness or disease. ³ Because most deaths are from illness, such as cancer or heart disease, ACC leaves an income-replacement gap for the most likely scenarios. That's a large part of why income is the asset most New Zealanders leave unprotected: only about 20% insure their income against sickness or disability, compared with 98% who insure their home and 95% who insure their car. ²

How do debts, the mortgage and children's costs factor in?

Debt is the most concrete part of the calculation, and the mortgage usually dominates it. Clearing the home loan so a surviving partner isn't carrying repayments on one income is, for most families, the single largest line. RBNZ figures put total household mortgage lending in New Zealand at roughly $360 billion, which gives a sense of how much debt a death benefit may need to extinguish across the country. ¹⁰ Your figure is simply your own outstanding balances — mortgage, car, personal and any business debt.

Children's costs are the line people most often underestimate. Beyond day-to-day raising costs, a surviving parent may need to pay for childcare that the other parent previously provided, plus schooling and support through to independence. Sizing this to an estimated annual cost over the years until your youngest is independent keeps it grounded rather than a round guess.

Final expenses round out the build-up. A typical New Zealand funeral commonly costs around $10,000 or more, and that's an amount usually added on top of debt and income-replacement needs so the immediate cash is there without dipping into other money. ⁸

What existing cover and assets do you subtract (KiwiSaver, ACC, savings)?

This is the step that keeps the number honest, and the one DIY calculations most often skip. You don't need to insure what your household already has access to.

• KiwiSaver. On death, a member's full KiwiSaver balance is paid to their estate, so it counts as an existing asset to subtract. ⁶ How much has built up depends on contributions over time — the employee and employer minimum was 3% each as at 22 January 2025 (rising to 3.5% from 1 April 2026 and 4% from 1 April 2028, not yet in effect on this date), so a balance accumulating over that period assumes the 3% rate. ⁷ Government contributions also add up: as at 22 January 2025 the maximum annual Government contribution was $521.43 (50c per $1, up to $1,042.86 of member contributions per KiwiSaver year). ⁶ That maximum was halved to $260.72 from 1 July 2025, so figures depend on the year. KiwiSaver and managed funds are investments — their value can go down as well as up, so the balance you subtract is today's value, not a guaranteed one.
• Savings and other assets. Cash savings, other investments and any assets your family could draw on reduce the gap.
• Existing life cover. Any cover you already hold — including group cover through an employer, where it applies — comes off the total.
• ACC, with care. ACC pays a survivor's grant and weekly payments only where death was caused by accident. ³ It does not cover death from illness, so it's reasonable to count it only for the accident scenario, not as a general offset.

Add up the needs, subtract these, and what remains is the sum insured a life policy is designed to cover.

How does cover for a stay-at-home parent fit the calculation?

A stay-at-home parent has no salary to replace, which is exactly why this case is so often under-covered. The work they do — childcare, household management, running the home — still has real economic value, and replacing it costs money.

So the cover is sized on the replacement cost of that unpaid work rather than a salary: what it would cost to pay for childcare, after-school care and home help until the children are independent. Stats NZ time-use data shows unpaid household and caregiving work is a substantial economic contribution, which supports sizing cover to the cost of those services. ⁹ In practice the survivor often needs to reduce paid work or buy in care, so the household faces both lost capacity and new costs at once.

We cover this case in more depth in our guide on life cover for a stay-at-home parent in NZ, and the broader family picture in life cover for parents in NZ.

How an adviser pressure-tests your number

A first calculation gives you a figure. The value of advice is in stress-testing it against the things people forget. An adviser's needs analysis typically checks:

• Whether the income-replacement period is realistic for your family, not just a default
• What existing cover, KiwiSaver and savings genuinely offset the need
• Whether ACC actually applies to your likely scenarios, given it excludes illness ³
• How the cover should be structured and owned so it reaches the right people quickly

That last point matters as much as the number itself — the way cover is owned and structured affects whether it does its job, which we cover in how an adviser structures life cover in NZ. Getting the figure right and getting the structure right are two separate jobs.

Frequently asked questions

How much life insurance do I need in NZ?

Enough to clear your debts, replace the income your family relies on for as long as they'd need it, cover children's and education costs and final expenses, less what your household already has — KiwiSaver, savings, existing cover and ACC where it applies. ⁴ That needs-based figure is more reliable than a flat salary multiple, because it reflects your actual debts, dependants and existing resources.

Is "ten times my salary" a good rule for life cover?

It's a rough starting point at best. A salary multiple ignores your debts, how many years of income your family would need, children's costs and what you already have set aside. Sorted recommends adding up your family's actual needs instead. ⁴ Two people on the same income can need very different amounts.

Does ACC mean I need less life insurance?

Only for accidents. ACC covers death and incapacity caused by accident or injury, not death or illness from sickness or disease. ³ Because most deaths are illness-related, ACC leaves a gap that life cover is designed to fill, so it can't be relied on as a general substitute.

Should I subtract my KiwiSaver from the amount I need?

Generally yes — on death, a member's full KiwiSaver balance is paid to their estate, so it's an existing asset. ⁶ Use today's balance, since KiwiSaver is an investment whose value can rise or fall. Remember the balance still has to be released through the estate, which takes time, so it doesn't replace immediate cash needs like funeral costs.

How do you size life cover for a stay-at-home parent?

On the replacement cost of the unpaid work they do — childcare, after-school care and home help — until the children are independent, rather than on a salary. ⁹ Stats NZ data shows unpaid household and caregiving work is a substantial economic contribution, which supports sizing cover to those services.

How often should I review my sum insured?

Whenever your circumstances change — a new baby, a bigger mortgage, a pay change, debts paid off — and otherwise periodically. The number that's right today can drift as debts clear and children grow, so the needs analysis is worth re-running rather than setting once and forgetting.

Returns are not guaranteed. The value of investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future performance. KiwiSaver is a long-term savings scheme; Government contributions, contribution rates, withdrawal rules and tax settings are set by the Government and can change — figures are correct as at 22 January 2025, and you can check current rules at ird.govt.nz, kiwisaver.govt.nz and sorted.org.nz. Whether a claim is paid depends on the terms, conditions, exclusions, stand-down periods and underwriting of the specific policy and on your disclosure — always read the policy wording. We're generally paid by commission from the insurer or provider when you take out cover through us; this doesn't change the price you pay, and we manage conflicts in line with our duty to prioritise your interests (full details in our Disclosure). This article is general information only and is not personalised financial advice. Smiths Financial is a trading name of Craig Smith Business Services Ltd (FSP712931), which holds a Class 2 financial advice provider licence issued by the Financial Markets Authority to provide financial advice on personal risk insurance, health insurance, general insurance, KiwiSaver and managed funds. Our advisers, Henry Smith (Financial Adviser) and Craig Smith (Principal Adviser), are bound by the Code of Professional Conduct for Financial Advice Services and the duty to give priority to clients' interests. Craig Smith Business Services Ltd is a member of the Financial Dispute Resolution Service (FDRS), a free and independent dispute resolution scheme. Our disclosure information is available free of charge on request and on the FMA Financial Service Providers Register at fsp-register.companiesoffice.govt.nz. Written by Henry Smith, Financial Adviser; reviewed by Craig Smith, Principal Adviser. Last reviewed 22 January 2025.