How Much Life Insurance Do You Need?

If you’re thinking of taking out life insurance, one of the biggest hurdles can be determining how much cover you need. It’s not easy to see into the future and comprehend what might happen, so calculating your level of life insurance can be tricky. In this article you’ll learn some tips for determining the right level of life insurance for your needs.

What if you’re underinsured?

If your life insurance policy pays out less than you need, your family may struggle to cope with paying bills after your passing¹. Protecting your family’s future is the biggest benefit of having life insurance, so it’s important that the payment they receive is enough to cover their general living expenses.

Some professions naturally put you at a higher risk of having a serious workplace related accident than others or alternatively you may wish to protect yourself if you were to suffer a serious illness. Cover for these types of events usually comes from life insurance related products such as total and permanent disability cover (TPD), trauma cover, or income protection.

As mentioned, these types of policies are more relevant if you want to protect yourself in case of a serious illness or injury, but the important thing is to ensure you have the right level of cover. This way, if something unfortunate should happen, you’ll be able to focus on recovering without stressing about your finances.

What if you’re over insured?

Over insurance means that you’re paying for levels of life insurance that you won’t use, or are unlikely to use. The impact of this is that you’re paying unnecessarily excessive monthly insurance premiums.

With that in mind, it’s important to avoid both underinsurance and over insurance, and find yourself the level of cover that is just right. The Australian Securities & Investments Commission (ASIC) recommends that Australians take the time to understand the cost of premiums, both now and in the future².

They also suggest that you pay attention to what is and isn’t covered in a potential policy, and how your medical history may affect your ability to apply for insurance cover or to make a claim in the future.

How much is life insurance in Australia?

Life insurance premiums vary significantly from policy to policy, and provider to provider. Your premiums will be calculated based on a variety of factors, including:

● Whether you’re a smoker
● Your age
● Your lifestyle
● Any pre-existing conditions you may have
● The level of cover you need
● The people covered by your policy, such as children or a spouse

The best way to find out what life insurance premiums may cost you is to compare policies with iSelect. We’ll show you a number of policies which you can view side by side, allowing you to compare providers, prices, and levels of cover all in one place.

How much life insurance do I need?

The ASIC recommends that you consider two main factors to work out how much life insurance cover you may need²:

1) Your needs
2) Your benefits

There may be other factors that you need to consider based on your needs and circumstances. For example, your budget is also an incredibly important factor to consider when purchasing any policy, including life insurance.

How to calculate your life insurance needs

It’s a good idea to start by considering every potential living cost you or your family may incur over a typical year. This may include living costs, education, entertainment, utilities, mortgage, and anything else that may be a recurring expense.

How to calculate your life insurance benefits

This can include payments you may receive on your death, such as superannuation, bank balances, employment payouts (such as annual leave), shares, or existing life insurance policies. ASIC recommends that the level of cover you insure yourself for should be sufficient to cover your costs of living. It’s also important to consider ongoing expenses.

For example, do you want your family to be covered for five years, ten years, or even the rest of their lives? If so, the life insurance payout that’s required will significantly increase – as will your premiums.

What life insurance can you afford?

It’s important to ensure that you can afford your monthly premiums to get the level of cover you require. That’s why at iSelect we make it easy for you to compare policies and find an option for you and your budget.

How to review your life insurance

Life insurance is not a ‘set and forget’ policy. ASIC suggests that you review your life insurance policy every time your income or personal circumstances change. This means that any time you change jobs, have children, increase or pay off your mortgage, inherit money, change your income levels, or alter your living expenses in any other way, then it may be a good time to review and compare policies.

Whether you’re considering purchasing life insurance for the first time, or are reviewing your current policy, our team of qualified risk advisers can help you find the right level of cover for you. Compare online, or call us on 13 19 20 today.

iSelect does not compare all products in the market. Not all products are available at all times.

iSelect Life Pty Ltd – ABN 89 124 304 347, AFS Licence Number 331128. Any advice provided in this content is of a general nature and does not take into account your objectives, financial situation or needs. You need to consider the appropriateness of any information or general advice we give you, having regard to your personal situation, before acting on our advice or purchasing any product. You should consider iSelect’s Financial Services Guide which provides information about our services and your rights as a client of iSelect. We receive commission for each product sold.

Sources:
1. https://www.moneysmart.gov.au/insurance/life-insurance
2. https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/insurance-through-super