How Much Life Insurance Do I Need?

Find out how to work out the amount of life insurance cover you may need with Savvy.

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, updated on July 10th, 2023       

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When buying life insurance, it's important to ensure you have enough coverage to protect your loved ones if you were to pass away or fall ill. However, determining the right amount of coverage can be a daunting task. Factors such as your income, debt and family situation can all play a role in how much life insurance you should have.

You can find out more about how much life insurance you may need with Savvy today. Read about the factors to consider when working out what amount is most suited to your family’s needs before you buy your policy.

How much life insurance cover do I need when purchasing my policy?

The amount of life insurance coverage you may need will be different for each individual, as everyone has different circumstances which may impact the amount of cover required. Some companies advise people to roughly calculate their cover by multiplying their salary by ten, although this doesn’t necessarily provide a suitable figure for everyone. Ultimately, there’s a range of factors which can influence the amount of cover suited to your needs.

What should I consider when working out how much life insurance cover I need?

The key factors to consider when determining how much life insurance cover you may need include the following:

Your age

First and foremost, consider where you are in your life. If you’re in your 30s with a small amount of superannuation and savings, your disablement or death could cancel out 30 years’ worth of salary. As such, you may need more coverage in this instance. For those over 60 or 65, with much of your earning days behind you, your life insurance payout may not need to be as great, as your family may not rely on you as much for cover.

Regular household bills

You should consider the cost of regular household expenses, such as rent, utilities, groceries, transportation and school fees when calculating your life insurance needs. Your policy should cover enough to ensure your dependents can maintain their standard of living if you're no longer there to provide for them.

Outstanding debts

If you have any outstanding debts, such as credit card balances or a mortgage, you should factor these into your life insurance coverage. Your policy should be enough to help your family pay off these debts more comfortably if you pass away unexpectedly, rather than leave your partner with the burden of supporting your mortgage off a single income.

Your family

The size of your family and their financial needs should also be considered when calculating your life insurance coverage. If you have dependents, you'll need to factor in their education costs, healthcare expenses and other necessities. You should also consider the needs of your spouse or partner, such as retirement savings.

Other assets

If you have other existing assets, such as investments or savings, you may not need as much life insurance coverage as someone without them. However, it's essential to ensure that your policy covers any shortfalls in these assets, especially if they aren’t easily accessible or may fluctuate in value.

Type of policy

There are different types of life insurance policies: life cover, income protection cover, TPD cover and trauma cover. You should consider which policy type best suits your needs and budget and the amount you may need for that specific type. For instance, you may not need as much income protection if your partner is earning enough (and you have savings) to support your household temporarily, but more life cover may be necessary if you have expensive liabilities outstanding.

How much you can afford

Lastly, it's essential to consider how much you can afford when calculating your life insurance coverage. You don't want to overextend yourself financially, but you also don't want to be underinsured. You should work out a balance between your coverage needs and what you can afford to pay in premiums.

How much life insurance cover should I have if I’m single?

Again, the amount of life insurance cover you need as a single person depends on your financial situation and your plans for the future. Consider your outstanding debts and any financial commitments you may have in the future. You may also want to factor in the cost of funeral expenses. Additionally, think about who you would like to provide for in the event of your passing, such as parents or siblings, and the amount of financial support they would require.

Even if you don’t have anyone to pass a life cover payout to, other types of life insurance may still be worth considering. For instance, being single doesn’t necessarily negate the need for income protection, trauma and TPD cover, as each of these can help support you if you’re unable to work and cover potentially steep medical costs. As such, it’s worth taking the time to consider your priorities to help you determine what may be the best solution for your situation.

The factors affecting the cost of your life insurance

Frequently asked questions about how much life insurance you may need

How can I get a life insurance quote to help me work out the cost of my policy?

You can get a free, no-obligation, online life insurance quote through Savvy. Simply fill out a form to provide information about you, your profile and the cover you’re looking for and you’ll be able to consider offers from our panel of leading Australian insurers side-by-side in one place.

How much life insurance do I need if I’m a senior?

The amount of life insurance cover you need as a senior depends on your individual circumstances. If you're debt-free and have no dependents, you may not need as much cover as someone who has a mortgage and a family to support. Consider your current and future expenses, outstanding debts, and any other financial obligations you have when deciding on the right amount of cover for you.

Can my super fund provide the life insurance cover I need?

Your super fund can provide life insurance cover as part of your superannuation policy. However, whether it’s suitable for your needs will depend on what your needs are. In general, life insurance through super comes with lower maximum payouts and has premiums deducted from your super, although these premiums are typically cheaper and easier to manage. It's important to review your options carefully and regularly to help ensure your cover meets your changing needs and is still appropriate for you.

Can I claim my life insurance premiums as a tax deduction?

Life insurance premiums generally aren’t tax-deductible in Australia. However, the payout from a life insurance policy is usually tax-free, so you won't need to pay tax on the lump sum your beneficiaries receive if you pass away. If you're unsure about the tax implications of your life insurance policy, you should consult a financial professional.

Should I rely on my employer’s group policy to give me the cover I need?

Group life insurance may be offered as part of your employment package through your work, but the coverage, terms and conditions will depend on your employer’s policy and insurer. It’s important to carefully consider these when determining which is the most suitable life insurance for you.

Do I need life insurance if I’m a non-Australian resident?

Non-Australian residents may still need life insurance if they have financial obligations or dependents in Australia. However, if you aren’t a permanent Australian resident, you’ll need to meet several criteria to qualify for coverage, which will typically include the following:

  • Hold a working, business or migrant visa which is accepted by your insurer and enables you to live in Australia for up to four years in some cases
  • Have lived in Australia for at least six to 12 months
  • Intend to apply for permanent residency at the conclusion of your visa term

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Compare life insurance policies side-by-side

Through Savvy, you can consider a range of competitive life insurance policies from reputable insurers, whether you're after life, income protection, trauma or TPD cover. Get the ball rolling on comparing your available options today!

Disclaimer:

Savvy is partnered with Compare Club Australia Pty Ltd (AFS representative number 001279036) of Alternative Media Pty Ltd (AFS License number 486326) to provide readers with a variety of life insurance policies to compare. Savvy earns a commission from Compare Club each time a customer buys a life insurance policy via our website. We don’t arrange for products to be purchased from these brands directly, as all purchases are conducted via Compare Club.

Savvy does not compare all life insurance policies or providers currently operating in the market. Any advice presented above or on other pages is general in nature and doesn’t consider your personal or business objectives, needs or finances. It’s always important to consider whether advice is suitable for you before purchasing an insurance policy.

For any further information on the variety of insurers compared by Compare Club or how their business works, you can read their Financial Services Guide.