How Much Life Insurance Do I Need?
Find out how to work out the amount of life insurance cover you may need with Savvy.
Fact checked
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
Amount of cover
The amount of cover you choose will impact your life insurance policy because it determines how much your insurer will pay out in the event of your death. The more cover you have, the higher your premiums will be, but it may also provide greater financial security for your loved ones if a covered event takes place.
Age
Age is a significant factor which impacts your life insurance policy because it affects your risk of illness and mortality. The older you are, the higher the likelihood of developing medical conditions which can increase the risk of further complications or death, which in turn increases your premiums.
Occupation
Your occupation can impact your life insurance policy because some jobs are considered riskier than others. If you have a high-risk job, such as a construction worker or a firefighter, you may pay higher premiums (or be denied coverage altogether) because of the increased likelihood of injury, illness or death on the job.
Health status and family history
Insurers will assess your current health, with any pre-existing conditions potentially leading to increased premiums, coverage with exclusions or a denial of coverage. However, even if you have a clean bill of health, a family history of illness may hike up the cost of your policy.
Smoking status
Smoking is a significant risk factor which can impact your life insurance policy. Smokers are more likely to develop health issues that can increase the risk of death and, as a result, they’re likely to pay much higher premiums than non-smokers.
Type of policy and insurer you choose
The type of policy you choose will impact the premiums you pay for life insurance. For example, life cover policies won’t cost the same as TPD policies. Additionally, different insurers have different underwriting standards and charge different amounts for their policies, so it’s important to compare them before you buy.
Frequently asked questions about how much life insurance you may need
Helpful life insurance guides
Compare life insurance policies side-by-side
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.