To determine your cover, calculate the sum of your debts, income replacement needs, and funeral costs, then subtract any existing assets.
Major life events like having a baby should trigger a cover review, as a significant majority of Australian families remain underinsured.
Choosing between stepped premiums that rise with age or level premiums can offer better long-term value depending on your budget.
How much life insurance do I need? Putting a price on your life is no easy task, and the reality is that the right amount of life insurance varies depending on your personal circumstances and the state of your finances.
Assessing your needs in detail
To work out the correct amount of cover you need, you will have to calculate how much money your family would need in order to maintain their current standard of living if you were no longer around. A simple way is to make a checklist of what you need covered:
Your family's debts. This includes your mortgage, credit card, car repayments and any other money you owe.
The income you currently provide. This pays for school fees, utilities and regular expenses.
Your funeral expenses. This is an estimate of funeral and legal costs at the time of your death.
A good idea is to also consider what assets you have that you or your family could turn into cash. This will help you avoid over insuring.
You will need to look at the debts that your family will still need to pay in the event that you pass away. Each year, families are left devastated not only by the loss of a loved one but by the debt they must cover following their loved one's passing. To determine an appropriate amount of cover, you need to take into account any debts you currently owe, such as the following:
Your mortgage debt. This is not restricted to your current home since you will also need to consider investment properties and holiday homes.
Any outstanding loans. This may include personal loans, investment loans, business loans and car loans.
Existing credit products. You need to take into account money owing on credit card and charge accounts.
You will need to consider the current expenses that your family will still need to pay if you were to suddenly pass away. These expenses include the following:
Annual living costs. This includes food, clothing, bills, taxes, school fees, petrol, etc.
Any investments you may have. Consider property or any other investments that you currently have. Would you want your surviving family members to maintain these if you were to pass away?
Homemaker duties. Consider how much it could cost to cover the unpaid duties that you regularly carry out throughout the home. The cost of home maintenance, housekeeping and child minding can come as a great shock to many.
It's important for you to consider all sources of income that your family members may be entitled to after you're gone. This may include the following:
Current savings
Employer benefits
Investments
Funds accumulated in superannuation
Finder survey: Would any of these events make Australians of different ages take out or adjust their life insurance coverage?
Response
75+ yrs
65-74 yrs
55-64 yrs
45-54 yrs
35-44 yrs
25-34 yrs
18-24 yrs
None of the above
82.76%
74.86%
66.28%
51.81%
32.99%
27.98%
17.53%
Buying a home
8.62%
10.29%
9.88%
16.58%
21.32%
22.48%
29.9%
Retirement
8.62%
11.43%
18.02%
21.76%
24.37%
19.72%
27.84%
Getting married
6.9%
10.86%
6.98%
11.4%
16.75%
26.15%
36.08%
Having a baby
5.17%
10.86%
11.63%
21.76%
39.09%
43.12%
51.55%
Moving home
3.45%
1.14%
2.33%
2.07%
5.08%
7.8%
12.37%
Starting university education
1.72%
0.57%
0.58%
2.07%
3.05%
2.75%
8.25%
Your children moving out of home
1.72%
2.29%
4.07%
6.74%
4.57%
5.96%
15.46%
Buying a car
2.29%
2.33%
2.59%
5.08%
6.88%
13.4%
Starting a new job
1.14%
1.74%
6.22%
8.12%
15.14%
22.68%
Source: Finder survey by Pure Profile of 1110 Australians, December 2023
What type of life insurance do I need?
It is ironic that most people won’t have any second thoughts about getting insurance for their cars, homes and health but overlook things like protecting their families and their incomes in the event of illness, disability or sudden death.
Below is a list of the important types of life insurance you may want to consider:
Term life insurance
Life insurance protects your family from financial stress in the event of your death.
What to consider when deciding on a cover amount
Your debts
The cost of raising your kids
Your funeral requirements
Income protection
Income protection gives you coverage when you are unable to work due to severe illness or extreme physical injury. Regardless of whether you are single, it is wise to have some money to depend on if something unfortunate happens. Income protection can help you cope financially because it pays you up to 75% of your income. It covers you until you are ready to re-enter the workforce or until retirement age in cases where there is total disability.
What to consider when deciding on a cover amount
How much money you need to keep up your lifestyle
How much sick leave you have
Critical illness insurance
Critical illness insurance helps ease the financial stress and burden brought about by a serious illness by paying you a tax-free lump sum. This insurance covers you from the time you are diagnosed with a critical illness until you have fully recuperated. Although not all types of illnesses are covered, it does cover the most common terminal illnesses such as cancer, kidney failure, major organ transplant and multiple sclerosis. Critical illness insurance is important because it can boost your finances in times of emotional and financial hardship.
What to consider when deciding on a cover amount
The amount you need that will allow you to live comfortably.
The rough costs of living with a major illnesses such as cancer.
Total permanent disability (TPD)
Total permanent disability insurance acts as a safety net in the event of an accident which results in total disability. It also pays you a lump sum to replace any lost income because of your inability to work due to the permanent disability. You should not confuse this with income protection because TPD pays only when you are completely disabled.
What to consider when deciding on a cover amount
How much you will lose from not working
Your ongoing expenses
Your debts and mortgage
Costs of changing your life style, such as hiring a carer
Modifications to your home
What premium is right for you?
When shopping around for the perfect policy, you will come across a number of insurance terms you might not be familiar with. This unfamiliarity could lead to you getting the incorrect policy for you and your family. In order to purchase the right policy, you should know which type of insurance premium you want. There are three kinds of premiums:
Stepped Premiums. These are calculated on a person’s age. The younger you start with a stepped premium, the cheaper it is. However, as your age increases, so does your premium.
Level Premiums. These premiums work the exact opposite of stepped premiums. Here, you tend to pay much higher at the beginning but pay less as you grow older.
Hybrid Premiums. Hybrid premiums increase until a pre-determined age and then level off. This option is not offered by all insurers.
A stepped premium may seem to have the advantage because it is much cheaper, but if you think about insurance on a long-term basis, you will see the wisdom of having a level premium.
The amount of life cover you can take out will be dependent on both your situation and the policy you decide to go with. Many life insurance policies will offer a maximum-sum insured on policies, which can be adjusted depending on your age, your occupation and other personal features. Other policies will enable you to take out as much cover as you desire.
Maximum Cover for Additional Benefits
Additional benefits will often have a maximum benefit amount that is applied. For example, the Zurich Protection Plus - Death Cover plan will provide your family with funeral expenses up to a maximum of $15,000.
Maximum Sum Insured for TPD
Life insurance underwriters will closely consider the amount of cover you apply for in a TPD plan to insure the amount does not surpass what you would be entitled to if you had remained working. Life insurance companies do not want to make payments that result in you “milking” the system by making more than you would if you were to continue working.
Maximum Sum Insured for Trauma
Similar to TPD, you will need to explain your reasoning behind taking out a high amount of trauma insurance cover. It is not enough that you can afford the premiums. You must show why your situation requires such a substantial benefit payment. Most policies will only offer up to $2 million in cover.
What could impact the amount of cover that I can take out?
Your age
Your occupation
Any pre-existing conditions that you may have
Dangerous pastimes/hobbies that you are involved in
Some common life insurance myths
Despite knowing the benefits that life insurance can bring, people still procrastinate when it comes to getting insurance. Two of the most common reasons why people don’t buy insurance are that it is too expensive and that it is too complicated to understand.
Furthermore, there are a lot of myths regarding life insurance. To separate fact from fiction, it is best to look into these myths closely.
Because it offers a lot of tax concessions, most Australians opt to purchase life insurance through their superannuation. However, most are not aware that insurance in their super is set at the default unless they actively pursue it. This means that the coverage under default insurance is usually quite low and may not be enough.
Some of the benefits you can get from purchasing insurance through your super are the ability to use your super funds to pay for the premiums instead of purchasing a separate policy and the possibility of a government contribution. You can also qualify for a tax offset when making contributions on your spouse’s behalf. Another benefit is that your dependents can receive a tax-free lump sum in the event of your death.
However, despite the benefits and tax concessions you get from purchasing insurance through your super, you need to make sure that the level of cover it provides is enough to cover your family's needs. You might also want to know if there is a continuation option available when you leave your job.
Another reason for not purchasing life insurance is that you are a stay-at-home parent. Most people think that staying at home exposes them to less risk than at the workplace. This may be true, but the loss of a homemaker can also put the family under great financial strain. Some costs that the family may incur after the loss of a stay-at-home parent include the following:
Childcare
Home maintenance costs
Meal preparation
A young person without any debts often doesn't give any thought to purchasing insurance. However, the risks that a married and a single person face are the same. A young, debt-free person may not need comprehensive insurance, but they should consider getting insurance that will provide a steady flow of income if an accident or illness occurs which would render them unable to work for an extended period.
This isn't true. Although there has been a few specific cases of companies not paying out legitimate claims, this isn't true for the majority of the industry. This guide discusses how to avoid situations where you are unable to claim.
Getting the right level of cover is critical
Approximately 95% of Australians with dependent children do not have sufficient life cover in place. Many people will rely on the default level of cover provided in their superannuation but fail to determine how much their family would actually need in the event of their death. It is critical for all Australians to closely consider how much cover they have in place and to have a clear understanding of what their family would need following their death.
Speak to an insurance specialist to help you find personalised cover
Why compare life insurance with Finder?
You pay the same price as buying directly from the life insurer.
We're not owned by an insurer (unlike other comparison sites).
We've done 100+ hours of policy research to help you understand what you're comparing.
Frequently asked questions
Several factors can influence the cost of your life insurance premiums. These include your age, your current health status, your medical history, your occupation, and any dangerous hobbies or pastimes you might have. The amount of cover you choose, the type of premium structure (stepped or level), and whether you are a smoker also play a significant role in determining your premium price. Generally, the younger and healthier you are when you take out a policy, the lower your premiums will be.
Not always. For lower levels of cover or for younger applicants, you may only need to complete a health declaration or answer a series of medical questions. However, for higher amounts of cover, or if you have certain pre-existing medical conditions, the insurer may request a medical examination, blood tests, or a report from your doctor. This helps the insurer accurately assess your risk and determine your eligibility and premium.
Generally, if a life insurance payout is made to a dependant of the deceased person as a lump sum, it is usually tax-free. Dependants can include your spouse, children under 18, or anyone financially dependent on you. If the payout is made to a non-dependant or through a superannuation fund, specific tax rules can apply. It is always wise to seek financial advice to understand the potential tax implications for your specific circumstances and beneficiaries.
You should review your life insurance policy regularly, ideally at least once a year or whenever a major life event occurs. Significant life changes such as getting married, having children, buying a home, taking on new debt, changing jobs, or even retiring can alter your financial needs and the amount of cover you require. Regularly reviewing your policy ensures it remains appropriate for your current situation and your family's financial security.
While the need for life insurance is often associated with having dependents, it can still be beneficial for single people without dependents. You might have outstanding debts such as a mortgage, car loan, or personal loans that would need to be settled. Life insurance can also cover your funeral expenses and any other final costs, preventing your estate or family members from incurring these expenses. Additionally, income protection or Total and Permanent Disability (TPD) insurance could protect your own future income and lifestyle if you were unable to work due to illness or injury.
Yes, in many cases, you can transfer your life insurance cover when you switch super funds. This process is often referred to as "porting" or "continuation of cover". It allows you to maintain your existing insurance policy and its terms when moving to a new super fund, potentially avoiding new medical assessments or waiting periods. However, it is crucial to check the specific terms and conditions with both your old and new super funds, as not all policies are transferable and there may be differences in cover levels or costs.
Yes, you can hold multiple life insurance policies. Many Australians choose to combine different types of cover such as term life insurance, income protection, and Total and Permanent Disability (TPD) insurance. Some may also have cover both inside and outside their superannuation. While having multiple policies can ensure comprehensive protection, it is important to avoid over-insuring, which means paying for more cover than your family would realistically need. Always consider your overall financial situation and objectives to ensure your policies align with your needs without unnecessary expense.
Cristal Dyer is a travel writer at Finder. She has been writing about travel for over five years and has visited over 40 countries around the world. Cristal currently travels full-time, writing about her favourite cities and food finds, and she is always on the lookout for amazing flight deals to share.
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James Martin was the insurance editor at Finder. He has written on a range of insurance and finance topics for over 7 years. James often shares his insurance expertise as a media spokesperson and has appeared on Prime 7 News, Insurance News, 7NEWS and The Guardian. An experienced journalist, James' work has featured in publications including The Irish Times, Companies100 and In Business. He holds a Tier 1 General Insurance (General Advice) certification and a Tier 1 Generic Knowledge certification, both of which meet the requirements of ASIC Regulatory Guide 146 (RG146).
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