Calculating life insurance
What should I consider?
How much money will your family need to maintain their quality of life if you pass away or are diagnosed with a terminal illness?
The lump sum payment from life insurance – up to $2 million from policies available direct through Choosi (depending on your age and policy) – can be used to maintain the lifestyle that your family is accustomed to.
A review of your family's current financial situation and how that might change in the future can help you determine the level of cover that is right for you and your family.
How much life insurance should I take out?
It's important to sit down and do your sums as underinsurance has become a growing problem among Australians.1
The following sets out some key aspects to consider in determining the amount of cover you need but it is not an exhaustive list of matters to consider. If you wish to obtain information that is more particular to your circumstances, you should consider obtaining independent financial advice.
When determining how much life insurance you need, you may consider things like:
- Your life stage and family situation (single, married with children, retired etc.);
- Your average income and household expenses;
- Your current financial position from savings and assets; and
- The standard of living you would like your family to have.
It might also be a good idea to check whether you already have some form of cover through your superannuation as well, as this may reduce the cover amount you need.
Immediate and day-to-day living costs
To work out your family's monthly living costs, you may need to consider things like:
- Ongoing rent or mortgage payments;
- Credit card payments;
- Groceries;
- Car costs such as petrol, insurance and maintenance;
- Utilities such as electricity, water, gas, phone and internet;
- Childcare;
- Transport costs;
- Travel/holidays;
- School fees and education costs;
- Medical and dental costs; and
- Other forms of insurance.
Future obligations
Another consideration when calculating life insurance is your family’s future financial obligations. These include things like:
- Mortgage repayments if you own a home;
- Life milestones that your family would expect, such as children getting married or attending university; and
- You or your partner’s retirement plans.
When choosing your life insurance cover amount, it may be a good idea to consider immediate costs on death such as your funeral, legal fees, and other expenses that your family could face.
By setting an accurate cover amount, you can help make sure your family will have enough money to meet their needs if something happens to you, while also keeping your premiums manageable.
Using life insurance calculators from trusted sources such as MoneySmart2 or other direct insurers may help you decide how much cover you need based on your personal situation.
This is general information only and does not take into account your personal objectives, financial situation or needs. You should consider the relevant PDS available on this website prior to purchasing any product. Choosi offers insurance products from a range of brands but does not compare all products available in the market.
References
- Dynamic Business, Most Australians are underinsured – are you one of them?, https://dynamicbusiness.com.au/topics/small-business-resources/most-australians-are-underinsured-are-you-one-of-them.html
- ASIC's MoneySmart, Life insurance calculator, https://moneysmart.gov.au/how-life-insurance-works/life-insurance-calculator