How Much Cover Do You Actually Need?

Lesson 2 flagged the common "cover equal to some multiple of your salary" shortcut as a rough industry convention, not a personalised figure. Here's the more accurate approach: building your cover need up from four specific components, each tied to something concrete your household would actually need funded.

Component 1: income replacement

This is usually the largest component. It's not simply "replace my full salary forever" — it's the present value of a portion of your income (a common starting point is around 75% of gross monthly income, adjustable), for the years remaining until your household would no longer depend on it, such as until a planned retirement age. Calculating this as a present value — rather than just multiplying monthly income by months remaining — accounts for the fact that a lump sum paid out today can itself earn a return over that period, so it doesn't need to be as large as a simple multiplication would suggest.

Component 2: debt clearance

This is the total of debts that would otherwise fall to your household to keep paying — a home loan balance, vehicle finance, personal loans, credit card and store account balances, and any other outstanding debt. The goal is a household that isn't forced to sell a home or a car simply to keep up with a debt repayment the lost income was funding.

Component 3: final expenses and an emergency buffer

This covers funeral expenses (which, as lesson 2 covered, benefit from a fast-paying funeral policy rather than waiting on life cover's longer claims process) plus a cash buffer — commonly a number of months of expenses — so the household isn't forced into financial decisions under immediate pressure while everything else is being sorted out.

Component 4: subtract what's already covered

The three components above are added together, then reduced by cover you already have — existing life policies, any group life cover through an employer, and liquid savings that could genuinely be drawn on immediately. What's left is the actual gap: the additional cover that would genuinely need to be bought.

Why this beats a flat multiple

Two people with identical salaries can have completely different real cover needs — one with a paid-off home and no dependants, another with a large bond, vehicle finance, and three children still years from being financially independent. A flat salary multiple treats them identically; adding up the four components above doesn't.

What this module covered

This module worked through the basic mechanism of insurance (lesson 1), the real difference between life and funeral cover (lesson 2), the regulatory distinction between medical aid, hospital plans, and medical insurance (lesson 3), what home and car policies actually cover (lesson 4), and here, how to size cover properly instead of relying on a shortcut.