What amount of life insurance is enough?

Co-author: TJ Ryan

No one has a magic spyglass that can show them the future… But you can and should plan ahead – just in case.

How much cover you need will vary according to your individual circumstances, the life stage you are going through and the type of insurance you are considering.

Essentially, working out how much you need to cover your family’s living expenses shouldn’t be too difficult. The best place to start is to write down an annual planner. This would contain fixed expenses such as mortgage, car repayments, all insurance premiums, kids’ school fees, and household expenditure including food, utility bills, and anything else you can think of that you pay on a regular basis.

It goes without saying that all families need a completely different amount to live on, depending on their circumstances, the family members’ ages, and the family’s financial commitments. There are plenty of online calculators you can play around with to give you a better idea – our Budget Planning Calculator is a good place to start.

“But I already have life insurance through my super.”

When you’re considering how much life insurance you should have, it can be easy to think that you don’t want to pay much now for something that you may not need until  years in the future. This is especially the case when many people have superannuation funds which include insurance coverage. They’d rather see their super grow than watch the insurance premiums come out.

The problem is that super funds may not provide sufficient cover for the majority of people. Remember the minimum level of cover provided via your super is not set by you – it is set by the super fund with all fund members in mind – a one-size-fits-all, if you like. You need to make sure that your life insurance covers the costs that you need it to.

According to Lifewise, research has shown that on average those with cover through their super policy have less than half the level of cover they need.

If you are unsure of the level of cover provided through your super fund, give them a call or talk to your employer.

The table below shows some of our best life insurance options available for a non-smoking female aged 30-39 years old, who is working in a white collar occupation group such as a clerk or office administrator. This table is sorted by Star Rating (highest to lowest).

Compare the rest of your options when it comes to term life insurance using our website:

Compare Term Life Insurance

How much life insurance do you need? Life Insurance Calculators

It all depends on your level of income and what you have in the way of outstanding debts. For example, for term life insurance, if you have a mortgage that will need to be paid out if you die unexpectedly, then you will need a higher level of cover than someone who is renting.

CANSTAR has several calculators to help you estimate your life insurance needs and the cover you may be eligible for, so that you have some idea of what to expect from your financial planner:

  1. Life Insurance Needs Calculator: Find out  an estimate of how much insurance and income protection cover you may need in the event of a trauma, death, total and permanent disablement (TPD) or if you are unable to work.
  2. Income Protection Insurance Calculator: Find out an estimate of how much cover you may be able to apply for if you were unable to work due to illness or injury.

You can use our life insurance calculator to estimate what sum insured amount you may need.

 

Life Insurance Calculator: How much insurance do I need?

How much life insurance do you need A higher level of cover will usually mean higher premiums, but not necessarily. Ask your financial adviser about how you can get the right life insurance coverage for your situation and your budget. For our full list of life insurance company ratings, check out our interactive comparison table and select your occupation, age, gender, and the amount of cover you’re looking for.

Compare Advised Life Insurance

 

CANSTAR is an information provider and does not provide personal advice, so you’ll need to ask your financial adviser about how much insurance coverage you need. However, we can tell you what we look for in terms of a sum insured for different types of life insurance, when we research and rate Advised Life Insurance each year.

The amounts that we quote on in our Methodology do not indicate that a policy with more or less coverage is going to be adequate for your situation, as we only research and rate policies and we do not provide personal advice. Please seek financial advice before making any insurance decisions.

What types of life insurance are there and how much do you need?

The various forms of life insurance exist to protect you in different circumstances, so you need to think carefully about what your requirements would be in each situation. You can learn more about each of the below forms of life insurance on our website.

How much… Term Life Insurance?

Term life insurance is intended to provide for those you leave behind when you die, so it’s vital that you’re realistic when calculating how much term life insurance you need. It may be tempting to cut the premiums you pay in favour of other items you need right now, but you wouldn’t want to leave your family in a precarious financial position when you’re no longer here.

When looking at what your sum insured amount should be, think about concerns such as:

Working out sum insured Paying off a mortgage
School fees
Clearance of debt

Your family is going to need enough money to survive without you and the income you bring into the home.

When we research and rate Advised Life Insurance, our Methodology currently compares standalone term life policies with a sum insured of:

  • Twenties: No less than $500,000 – up to $750,000
  • Thirties and Forties: No less than $1 million – up to $1.5 million (this is when the financial burdens of housing and young children are usually at their greatest)
  • Fifties and Sixties: No less than $750,000 – up to $1 million

How much… Total and Permanent Disablement (TPD) Insurance?

You may be completely healthy and capable of working today, but no one knows what tomorrow may bring. TPD insurance provides for you and your family should you sustain a major injury or illness that permanently prevents you from working.

Don’t underestimate the amount you will need, as you should consider:

 Calculating Total and Permanent Disablement (TPD) Insurance Loss of your whole income
Payment of mortgage and other debts
Ongoing provision for your family
Home modifications to accommodate a new disability

TPD insurance can be purchased by itself or as an add-on to term life insurance. It will pay out if due to illness or injury you can’t do any occupation you are suited to by education, training and experience ever again. You can pay extra to get an “own occupation” definition, meaning the policy will pay out if you can’t do your own specific occupation ever again.

When we research and rate Advised Life Insurance, our Methodology currently compares standalone TPD policies with a sum insured of:

  • Twenties: No less than $500,000 – up to $750,000
  • Thirties and Forties: No less than $1 million – up to $1.5 million (this is when the financial burdens of housing and young children are usually at their greatest)
  • Fifties: No less than $750,000 – up to $1 million

How much… Trauma Insurance?

Trauma insurance is intended to help both you and your family if you develop a serious illness such as cancer or heart problems, so it’s also often referred to as living insurance. You need to think about how much coverage you will need to cover the financial implications of such an event:

 Calculating trauma insurance Keeping up with regular debt payments
Payment for home modifications to accommodate your new illness or injury
Payment for medical care

If you don’t have this insurance, you stand the chance of falling behind financially if you struggle to work after becoming ill, because if you were able to keep working you would. You can’t make a claim on TPD insurance if you are technically still capable of working. Trauma insurance can be purchased separately or as an addition to term life insurance.

When we research and rate Advised Life Insurance, our Methodology currently compares standalone trauma policies with a sum insured of:

  • Twenties: No less than $150,000 – up to $200,000
  • Thirties and Forties: No less than $200,000 – up to $250,000
  • Fifties: No less than $100,000 for those in their 50s – up to $150,000

The table below shows some of our best income protection insurance options available for a non-smoking female aged 30-39 years old, who is working in an accountant role. This table is sorted by Star Rating (highest to lowest).

Compare the rest of your options when it comes to income protection insurance using our website:

Compare Income Protection Insurance

How much… Income Protection Insurance?

The difference with income protection insurance is that it’s paid in a form of regular payments and not as a lump sum. It’s intended to allow you to comply with your financial responsibilities should you become too ill to work.

You need to think about:

 Calculating income protection How long your employers sick pay (or savings if you’re self-employed) would last
What expenses you would need to continue to pay even if you couldn’t work
Whether you need cover for business expenses if you’re self-employed

If you’re ill the last thing you want is worry about finances; income protection insurance can help give you peace of mind.

When we research and rate Advised Life Insurance, our Methodology currently compares standalone income protection policies with a sum insured of:

  • Twenties: No less than $3,125/month ($50,000/year) – up to $5,000/month ($80,000/year)
  • Thirties: No less than $4,375/month ($70,000/year) – up to $6,250/month ($100,000/year)
  • Forties: No less than $5,000/month ($80,000/year) – up to $9,375/month ($150,000/year)
  • Fifties: No less than $5,000/month ($80,000/year) – up to $9,375/month ($150,000/year)

 

Compare Advised Life Insurance

 

To find out more about getting TPD insurance cover from a financial adviser and to compare your options, read our annual Life Insurance Star Ratings report.

Read more about Advised Income Protection Insurance

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