How Much Life Insurance Do I Need?

How do I calculate how much life insurance I need? 

To calculate your life insurance needs, start by considering every potential living cost you or your family could incur over a typical year. This could include living costs, education, entertainment, utilities, mortgage repayments, and anything else that’s a recurring expense. 

Then, consider your assets. This can include payments you expect your family to receive upon your death, such as your superannuation, savings, investment properties, stocks and other valuables.  

According to Moneysmart, the difference between these two calculations is the amount of life insurance you should get.  

It’s also worth considering how long your family might need financial support after your passing. The more money you would like your loved ones to receive, the more your premiums will cost. 

Once you have a rough idea of these figures, you can also use the iSelect Life Insurance Calculator to work out how much life cover you might need. 

How much is life insurance in Australia? 

There’s no one-size-fits-all premium when it comes to life insurance. Instead, the cost of your life insurance policy can depend on a range of different factors, including: 

• your age
• your job
• your lifestyle, including whether you’re a smoker
• your medical history
• whether you have any high-risk hobbies, like skydiving
• the level of cover you want  

If you’re interested in seeing how much life insurance premiums could cost you can compare policies from a range of providers through iSelect thanks to our trusted partner, Lifebroker. We’ll show you a number of policies so you can compare providers, prices and levels of cover all in one place.  

How do I avoid being underinsured? 

A common reason people take out life insurance is to protect their family’s financial future. With this in mind, it’s important to consider whether the payment they’ll receive will be enough to cover their general living expenses. 

Being underinsured is pretty common in Australia. In fact, a 2022 study commissioned by the Financial Services Council found that one million Australians are underinsured when it comes to life insurance or total and permanent disability insurance.¹Financial Services Council, Media release: Good advice would see a million more Australians with the life insurance they need

While it can be tempting to take out a less comprehensive policy or save on life insurance premiums, this could leave your family underinsured and struggling to cover even basic costs in the event you’re not there to help. 

How do I avoid being overinsured? 

On the flip side, you could take out a policy that includes levels of insurance that your family is unlikely to need. This is known as being overinsured. It means you might be paying unnecessarily high insurance premiums when there could be a more affordable policy that better suits your needs. 

To avoid being overinsured, it’s important to be accurate in how you track and calculate your assets. It’s also worth considering talking to a financial adviser to see how life insurance calculations might apply to your exact situation. 

How do I make sure I have the right life insurance policy? 

Apart from calculating your assets and your family’s needs, there are a few things that are useful to check. 

A great place to start is your policy’s product disclosure statement (PDS). This is the document with all the details about your policy, and your insurer is required by law to give it to you before you sign up. You’ll find all the information about what’s covered and what’s not, as well as information about premiums, waiting periods, and claiming. 

Helpful Tip:

It’s also worth double checking if you already have life insurance through your superannuation and reviewing which policy may be better suited to your needs.

Eliza Ryan

Senior Marketing and Growth Channels Manager, Lifebroker

How can I review my life insurance? 

As your life changes, it’s important to review your life insurance policy to make sure that it still meets your and your family’s needs. Like other insurance policies, it’s a good idea to review your policy annually or every time your income or personal circumstances change.  

Whether you’re considering purchasing life insurance for the first time or you’re reviewing your current policy, Lifebroker’s team of qualified consultants can try to help you find a suitable policy. Compare from a range of providers online and rest a bit easier.