GUIDES & RESOURCES

Tips For Calculating Your Life Insurance Coverage

In this article we’ll provide you with some information on the ways you could start to calculate how much Life Insurance you may need based on your age, current income, and any outstanding debts, including your mortgage.
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iSelect’s partnered with Lifebroker to help you compare a range of Life Insurance policies. Not all policies are available at all times or in all areas. Any advice provided on this website is general in nature and does not consider your situation or needs. Please consider if any advice is appropriate for you before acting on it. Learn more.

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And remember that life insurance is more than just one of life’s necessities – it’s peace of mind for you and your family.

The Money Smart Life Insurance Calculator

This Life Insurance Calculator from Money Smart can help you get you some clarity about:

  • Why you may consider taking out life cover
  • How much life cover you may need
  • What that life cover could pay for when you die

What the Life Insurance Calculator doesn’t do is address other forms of life insurance; things like income protection, total and permanent disability (TPD) or trauma cover. And while The Life Insurance Calculator is a very useful guide, it may not necessarily take into account certain expenses which you may need protected . That’s something you should discuss with a financial adviser in more detail.

You could choose to take out life cover that is enough to allow your family to carry on living as normal, covering the main expenses that were previously funded by your income. That’s why it’s important to enter every expense you have into the calculator. A financial adviser can help you and may suggest some expenses you hadn’t considered. The financial adviser can provide you with advice that is specific to your circumstances.

What factors influence the cost of life insurance?

Whether you use the Money Smart Life Insurance Calculator or work out how much cover you need alone, the cost of that cover might vary. A number of factors, such as those below, will affect how much you pay.

  • Gender: Statistically women are a better risk for life insurance companies than men. Not only do they tend to live longer, they also seem to look after themselves a bit better too with diet and the like. They’re also somewhat less prone to risk taking.
  • Age: Not surprisingly, people are more likely to die the older they get and, as a result, their life insurance premium could be higher than a younger person with otherwise similar status.
  • Smoking: It’s not good for your health and, therefore, it’s not good for your life insurance premium. Bit obvious this one, but smokers are prone to a lot more disease and illness, so they’re also prone to higher life insurance premiums.
  • Occupation: If you were a steeplejack, a pro rodeo rider or an underground mine worker, you’ve got a more dangerous job than a florist, for example. So people with these types of jobs typically pay more to get their lives covered.
  • Pre-existing conditions: If you’re already ill with something quite serious, you’re a higher risk, so your premium may be higher.
  • Family medical history: One of the best things your parents can do for you is be healthy. It’s also true when it comes to life insurance. Things like cancer, heart disease and stroke in the family can multiply your risk of these diseases and can increase your premium.
  • Lifestyle: This is about what you do in your spare time. If you have hobbies like free-fall parachuting, mountaineering in the Himalayas, or are an avid car racer, you can expect to pay more for your cover.

Should I choose a stepped or a level premium?

This is a question that changes over time.

Stepped premiums:

Stepped Premiums mean that the amount you pay in premiums increases each year as you get older. Stepped Premiums are re-calculated based on your age at each policy anniversary. This generally means your premium rate will start lower than the level premium structure, but will go up each year as risks increase.

Level Premiums

Level premiums can give you more certainty on the future cost, especially if you’re planning to keep your cover for many years. The premium is based on your age at the start of the policy. Premiums can increase if you have chosen to apply inflation protection or indexation to your policy. Premiums can also increase if you make changes to your policy or if the insurer increases the premium rate across all policyholders. Level premiums generally end at the policy anniversary before age 65 and will change to the corresponding stepped premium for your age until your policy expiry.

How to calculate the amount of coverage you require?

When calculating the level of cover, you could consider what level of financial support your family would require in the event of a sudden, unexpected event.

You can choose to cover all of your income or a percentage of it. But, you should have enough to cover expenses for your family for things like your mortgage or rent and any loans that you pay on a regular basis, school fees etc.

How do I find a Life Insurance policy that’s suitable for me?

Once you have an idea of how much cover you need, you can start comparing life insurance options from some of Australia’s leading Life insurers, with iSelect’s trusted partner, Lifebroker*.

Last updated: 29/09/2021

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