Income Protection Calculator

Multiplying an income by a number of years overstates what is needed, because a lump sum earns a return while it is being spent. It also understates it, because costs rise over the same period. Doing only one of those corrections gives a worse answer than doing neither.

This calculator applies both. It grows the required income each year, discounts each year back to today, and reports the amount that would fund the whole stream.

Result

Lump sum needed today

$712,754

Annual amount replaced: $54,600
Total without discounting: $819,000
Reduction from investment return: $106,246
Present value without growth: $607,064
Added by growth: $105,690
Years covered: 15

This is an estimate based on the values you entered. Actual premiums, coverage, eligibility and pricing vary by provider and by individual circumstances.

A lump sum can be invested, so the amount needed today is less than the raw total of future years. The discount rate you enter drives that difference - a conservative rate produces a larger, safer figure.

The household share reflects that some spending disappears with the person whose income is being replaced.

How to use the income protection calculator

Enter the annual income to be replaced and the number of years it must last.
Set the household share - the portion the remaining household actually needs.
Set the expected growth in that requirement, and a conservative return on the money.
Compare the present value against the undiscounted total to see what the return is worth.

What people use this for

Setting a cover amount that accounts for investment return rather than ignoring it.
Testing how sensitive the amount is to the return assumed.
Comparing a lump-sum benefit against a monthly income benefit.
Sizing disability or income protection cover on the same basis.

Worked examples

Every figure below is produced by running this calculator against the example inputs, so the numbers always match the tool.

Fifteen years at a conservative return

$78,000 of income, 70% needed by the household, for 15 years, growing 2.5% a year, discounted at 4%.

Lump sum needed today: $712,754
Total without discounting: $819,000
Reduction from investment return: $106,246

A higher return assumption

The same requirement discounted at 7% instead of 4%.

Lump sum needed today: $576,418
Reduction from investment return: $242,582

The discount rate does most of the work

A fifteen-year income stream discounted at 4% requires substantially more capital than the same stream at 7%. On a normal income the difference runs into six figures, which makes the return assumption the most consequential input in the calculation.

The money would be managed by someone dealing with a bereavement or a disability, and would have to survive a poor market at the wrong moment. A conservative rate is the appropriate direction to be wrong in.

What the household share represents

Some spending disappears with the person whose income is being replaced - their food, transport, clothing and personal costs. Between 60% and 80% of the income is typically what remains needed, depending on household size.

Fixed costs do not fall at all. A mortgage payment is identical for a household of three or four, which is why the share is never as low as first estimates suggest.

Methodology and assumptions

What this calculator does, and what it deliberately does not do.

Each year’s requirement grows at the growth rate, then is discounted to today at the return rate. The present value is the sum of those discounted amounts.
The flat comparison discounts a level payment with no growth; the difference is the cost of inflation protection.
Tax on investment income is not modelled and would increase the amount needed.
All figures are estimates produced from the values you enter. This site has no rate feed and no carrier data, so it cannot quote or price a policy.
Nothing you type is transmitted or stored - the calculation runs entirely inside your browser.

This calculator provides an estimate based on the information you enter. Actual insurance premiums, coverage, eligibility and pricing vary by provider and individual circumstances.

This website is not an insurance company, an insurance agency or a licensed broker. It does not sell insurance, does not provide insurance quotes, and is not authorised to give advice about which policy you should buy.

No result produced here is an offer of insurance or a guarantee of coverage. Only a licensed insurer or agent, working from your verified details, can quote or bind a policy.

Frequently asked questions

What return should I assume?

Something achievable in a conservative portfolio after fees. Assuming an aggressive return produces a smaller figure that only works if markets cooperate.

Gross or net income?

Net is closer to what the household spends, though a payout may itself be taxable in some jurisdictions. Being slightly generous is reasonable.

Does this replace the needs analysis?

No. It answers the narrower question of what income replacement alone is worth today. The needs analysis adds debts, education and final expenses.

Is tax on the payout included?

No. Treatment differs by jurisdiction and product, so no tax assumption is applied.

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