How much life insurance do I need? Future gazing

JACQUELINE BELESKY
Sub Editor · 8 January 2021
Without a crystal ball, how can you tell how much life insurance is enough to provide for your loved ones long-term, and how can you find a life insurance policy with the level of cover that meets your needs?

How much life insurance is right for you will vary depending on your personal circumstances, life stage and the type of insurance you are considering. We discuss:

What types of life insurance are there?

Life insurance as a category includes different types of cover that can be bought separately or bundled together, including life cover, trauma insurance, total and permanent disability (TPD) cover and income protection insurance.

  1. Term life insurance: cover that pays a lump sum to your nominated beneficiaries (such as your partner or family members) in the event of your death, or if you are diagnosed with a terminal illness.
  2. Trauma insurance cover: provides a lump sum of money if you are diagnosed with a specified illness, such as cancer.
  3. Total and permanent disability (TPD) cover: provides a lump sum payment if you become totally and permanently disabled and are no longer able to work.
  4. Income protection insurance: provides a benefit, usually paid monthly, to help replace a portion of your income if you are unable to work due to serious illness or injury.

Life insurance is available through your super or via an external policy. In some situations, people may choose to hold life insurance cover through both their super and an external policy, or a combination of the two options for different types of cover. 

The ‘sum insured’ for your life insurance policy is how much you are insured for – what you or your family will receive if you become disabled or pass away, and a claim is paid on a policy. 

If you’re comparing life insurance policies, the comparison table below displays some of the policies currently available on Canstar’s database for a 30-39 year old non-smoking male working in a professional occupation. Please note the table is sorted by Star Rating (highest to lowest) followed by provider name (alphabetical) and features links direct to the provider’s website. Use Canstar’s life insurance comparison selector to view a wider range of policies.

How much life insurance do I need?

How much life insurance you’ll need will depend on a variety of factors. Some of these include how much cover would be needed to pay off a mortgage and other debts you may have, as well as what money may be available to your loved ones from wider sources. Your life stage and budget may also impact your decision-making.

What you’ll receive versus what you’ll need

The amount of life insurance cover you need will depend on your beneficiaries’ needs, as well as what you or they will receive from other sources if something happens to you. Moneysmart recommends getting the amount of life insurance that’s the difference. As examples:

  • Money that’s ‘needed’ could include funds to pay a mortgage and other debts, in addition to ongoing living expenses (childcare, schooling etc).
  • Money that’s ‘received’ could include funds from your super, savings, investment sales, paid leave balances, and support from extended family and friends (e.g., free childcare that’s offered by a relative, ensuring that paid childcare isn’t required for a dependent). 

Canstar’s life insurance needs calculator can help you estimate how much insurance and income protection cover you may need.

Your life stage

Over your lifespan, what you earn, spend and save, as well as your assets, will change and could impact the level of insurance cover that may be suitable. For example, if you are older and have many assets to pass on through an inheritance based on your will and overall estate planning, your family may be less reliant on a payout from a life insurance policy. On the other hand, you may be at a life stage (such as being a single parent or family breadwinner) where providing for your loved ones via an insurance benefit in the event that you become seriously ill, disabled or die is of very high importance.

Assets with life insurance
Image: Phongphan (Shutterstock).

You may wish to factor in any assets you own, such as shares or property, when weighing up your life insurance needs.

Your budget

Because the amount of cover you choose is one of the factors that can impact how much your life insurance premiums will be, your budget – both now and in the future – is an important part of long-term financial planning. If you opt for a high level of life insurance cover, you’ll need to ensure that you will be able to afford the premiums. The following table shows average monthly direct life insurance premiums for a non-smoking male from his twenties to late fifties based on different sum insured amounts, as an example.

Average monthly direct life insurance premiums

Male, non-smoker
Age Sum insured
$250,000 $500,000 $750,000
Twenties $26.48 $48.37 $69.91
Thirties $25.08 $45.99 $66.54
Forties $42.99 $79.36 $115.24
Early Fifties $88.55 $163.89 $238.33
Late Fifties $162.71 $301.61 $439.05

Source: www.canstar.com.au. Prepared on 14/12/2020. Based on quotes obtained for Canstar’s 2020 Direct Life Insurance Star Ratings (June 2020).

Based on our 2020 Life Insurance Star Ratings, Canstar research shows the cost could also vary based on your age, gender, health and lifestyle choices (e.g. if you’re a smoker). Here’s how:

  • Gender. On average, males can expect to pay 42% more than an equivalent female for direct life insurance. On average, females can expect to pay 28% more than an equivalent male for direct income protection insurance.
  • Smoking. If you smoke, you can expect to pay 81% more than an equivalent non-smoker for direct life insurance. On average, smokers can expect to pay 26% more than an equivalent non-smoker for direct income protection insurance.

Wider considerations

In deciding which types of life insurance may be suitable for you, you may want to consider the pros and cons of life insurance through your super, as well as the pros and cons of direct life insurance. Many super funds offer life cover, TPD cover and income protection insurance, but trauma insurance is not usually available through super (unless you were in a fund that offered it before July 2014). 

It’s important to remember that if you have life insurance through your super, such as term life insurance or TPD cover, it can potentially end if you change funds, reach a certain age or stop making contributions. For a standalone policy, cover usually continues as long as you pay the premiums, although there is typically a maximum entry age for new policies and a maximum age beyond which you may not be able to renew an existing policy.

What can impact my life insurance?

The level of cover you need is just one of the many factors you will need to take into account when purchasing life insurance. Your choice of insurer, the policy details, various other factors that are unique to you and any exclusions that may apply can all impact your premiums and eligibility for direct life insurance and direct income protection.  

  1. Choice of insurer. The level of cover available and the premiums charged can be different depending on the insurer you choose, so it may be worth shopping around a range of providers before committing. To help you narrow down your options, Canstar’s Direct Life Insurance Star Ratings compare the products in our database based on both the cost and features on offer. Similarly, Canstar’s Direct Income Protection Star Ratings compare policies in our database based on both the cost and features.
  2. Policy details. Reading the product disclosure statement (PDS) for your life insurance policy will help you better understand any terms and conditions that may apply. Moneysmart recommends checking the PDS for:
    • what’s covered and what’s excluded under the policy
    • what information you’ll need to give an insurer
    • information on premiums and how they change over time
    • waiting periods before you make a claim
    • how to make a claim
    • how to complain about the claims process or decision
  3. Factors unique to you. These can include:
    • your age
    • your gender
    • your smoking status
    • your current health and medical history, including any pre-existing conditions
    • your job and any associated risks
    • your personal pastimes and hobbies
    • how you purchase your cover (e.g. direct from an insurer, via a financial adviser or as part of your superannuation)
    • the type of cover you get. For example, if you bundle life cover with TPD, trauma cover or income protection.
    • the amount of cover you take out. You might like to use Canstar’s Life Insurance Calculator to get an estimate of how much cover you may need. Your insurer may give you the option of choosing between stepped or level premiums. Stepped premiums increase each year as you age and become statistically more likely to make a claim, while level premiums stay the same over time but may be more expensive to take out initially.
  4. Exclusions. There are common exclusions for many life insurance policies, such as deaths or injuries caused by:
    •  suicide
    • a riot or political coup
    • criminal activities
    • terrorist acts
    • travel to a country with a ‘Do not travel’ warning by government authorities
    •  war
    •  HIV/AIDS
    • abuse or influence of drugs or alcohol
    • risky activities

The risky activities and war scenarios on SAS Australia would likely not be covered by many life insurance policies. Some of Australia’s contestants brave the cold.

How can your job impact life insurance costs?

Your job and any associated risks can impact the cost of premiums for various types of life insurance. When it comes to direct income protection, Canstar research shows that average premium costs can vary widely between professions. For example, non-smoking female truck drivers ($124.76) are charged more than double what non-smoking female accountants ($60.40) are charged per month for equivalent cover. The following table shows these differences for common occupations.

Average monthly direct income protection premiums

Person in their thirties*, monthly benefit of $3,125
Occupation Female Male
Non-smoker Smoker Non-smoker Smoker
Accountant $60.40 $76.00 $45.81 $57.58
Car mechanic $112.83 $142.58 $82.66 $104.34
Checkout operator $97.49 $122.12 $73.83 $92.43
Chef $102.13 $128.74 $73.98 $93.10
Clerk $64.61 $81.31 $48.47 $60.94
Commercial cleaner $107.87 $135.14 $81.34 $101.88
Electrician $112.83 $142.58 $82.66 $104.34
Receptionist $64.61 $81.31 $48.47 $60.94
Registered nurse $94.83 $120.09 $67.83 $85.80
Retail manager $65.82 $82.83 $49.32 $62.00
Sales assistant $70.27 $88.40 $52.60 $66.10
Sales representative $66.83 $84.10 $50.28 $63.19
Secondary school teacher $77.01 $97.25 $54.24 $68.36
Store person $82.26 $103.38 $62.98 $79.08
Truck driver $124.76 $156.38 $94.26 $118.11
Waiter $102.19 $128.00 $77.69 $97.26

Source: www.canstar.com.au. Prepared on 14/12/2020. Based on quotes obtained for Canstar’s 2020 Direct Income Protection Insurance Star Ratings (March 2020). *Premiums based on quotes for a sample of ages within the thirties age group: 32 and 37.

How does age impact life insurance costs?

As you get older, your life insurance costs will generally increase, based on average premiums offered by life insurance providers on Canstar’s database. The following table shows average monthly direct life insurance premiums for a sum insured amount of $500,000 for female and male non-smokers and smokers respectively from their 20s to late 50s.

Average monthly direct life insurance premiums

$500,000 sum insured
Age Female Male
Non smoker Smoker Non smoker Smoker
Twenties $32.70 $52.57 $48.37 $77.62
Thirties $35.39 $59.23 $45.99 $84.38
Forties $63.57 $117.92 $79.36 $164.43
Early fifties $122.59 $224.96 $163.89 $332.42
Late fifties $203.85 $356.18 $301.61 $582.41

Source: www.canstar.com.au. Prepared on 14/12/2020. Based on quotes obtained for Canstar’s 2020 Direct Life Insurance Star Ratings (June 2020).

How can I calculate my life insurance?

Canstar has life insurance calculators to help you estimate your life insurance needs.

  • Life Insurance Needs Calculator: This calculator can help you work out an estimate of how much insurance and income protection cover you may need.
  • Income Protection Insurance Calculator: This calculator can help you work out an estimate of how much cover you may want to apply for based on your income, in case you were to become unable to work due to illness or injury.

Cover image source: HENX (Shutterstock).

Original author TJ Ryan. This article has been reviewed by our Deputy Editor Sean Callery before it was published as part of our fact-checking process.

Follow Canstar on Facebook and Twitter for regular financial updates.


Thanks for visiting Canstar, Australia’s biggest financial comparison site*

→ Looking to find a better deal? Compare car insurancecar loanshealth insurancecredit cards, life insurance and home loans with Canstar. You can also check your credit score for free.


About the author:

Jacqueline-Belesky

Jacqueline Belesky is a Sub Editor at Canstar. She brings over 15 years of experience in corporate communications, media and publishing and holds a Bachelor of Journalism (Distinction) from Queensland University of Technology and postgraduate qualifications in Writing, Editing and Publishing from the University of Queensland. Jacqui was previously a Global Content and Media Manager for ABB in the UK and in Oslo, Norway, and has worked in Australia as a journalist for News Corp and editor for the Queensland Government, John Wiley & Sons and the University of Queensland. Jacqui’s articles have been published in The Courier-Mail, The Gold Coast Bulletin and on www.news.com.au. She also brings experience managing the editorial production of annual reports, financial statements, research papers and supplements on topics such as business sustainability and the global financial crisis. You can follow Jacqui on LinkedIn and Twitter, and Canstar on Facebook.

<