How Much Life Insurance Do You Really Need

The amount of life insurance cover that you need depends on a range of factors, including:

your individual financial circumstances,
your stage of life, and
whether or not you have financial dependants.

Let’s look at each of these important factors in more detail.

Your individual financial circumstances

An important life insurance consideration is how much debt you currently have in relation to your assets. Ideally, you’ll want your life insurance to cover all your debts so that your dependants aren’t responsible for them if you:

die,
become totally or permanently disabled,
become temporarily disabled and unable to work for a period,
or suffer a trauma such as a heart attack or stroke.

For example, if you have a large mortgage, you should ensure that your life insurance cover and any other assets that you have will be sufficient to cover the debt or your regular repayments. Otherwise, your dependants may be forced out of your home.

Your stage of life

It’s also important to understand that your financial circumstances will change over time, as your levels of debt and the value of your assets change. It’s important therefore to regularly review your financial circumstances to make sure you have enough life insurance cover for your ever-changing needs.

For example, you’re likely to need more cover at certain stages of your life (such as when you’re taking out a mortgage or starting a family), and less at others (such as when you’re young and have no debts or dependants, or when you’re financially secure and nearing retirement).

Whether or not you have financial dependants

If you have a partner and/or a child or children who currently rely on you for financial support, it’s also worthwhile to have an appropriate amount of life insurance cover to ensure their financial well-being.

For example, if you have young children, there will be ongoing childcare or education costs, as well as the costs to clothe and feed them. This is likely to be a financial burden for your partner on a single income if you don’t have appropriate life insurance cover in place.

According to the latest research from the Australian Institute of Family Studies, the minimum cost of raising a child in Australia is currently $140 per week. That’s more than $7,000 per year and nearly $150,000 over 20 years, and that’s for a bare minimum standard of living. If you have more than one child, the costs escalate accordingly.

The importance of regularly reviewing how much insurance cover you have

Most Australians have an automatic level of insurance cover through their super fund. You should always consider the amount of this cover when assessing your needs. Depending on your financial circumstances, stage of life and whether or not you have financial dependants, it may or may not be enough for your needs.

It’s also important to note that a recent legislative change may have affected the amount of life insurance cover that you have in your super. From 1 July 2019, the ‘Protect Your Super’ legislation has come into effect. Super funds can no longer deduct life insurance premiums from ‘inactive’ super accounts. Inactive super accounts are those where a member contribution hasn’t been made for at least 16 months (even by an employer on the member’s behalf as part of the compulsory superannuation guarantee).

Therefore, if you have changed jobs over the years and you aren’t actively making contributions to the super funds you may be have previously been a member of, you’ll now have less life insurance cover than you would have had previously.

How we can help

At Qi Wealth, our experienced, expert team of insurance specialists can help to ensure that you have the right level of life insurance coverage to meet the needs of your loved ones. We can also help you arrange life insurance coverage via your self-managed super fund (SMSF) if you are a member of one. We’ll take the time to understand your individual circumstances so that we can provide you with the best possible advice. We develop long-term, trusted relationships with our clients.