Life Insurances

REVIEW: How Much Life Insurance Do I Need?


We have all heard about the importance of having sufficient life insurance but how much do I really need?


This blog is NOT a recommendation or statement of opinion, this blog is factual review of the personal insurance covers available at the time of writing, intended to inform & entertain – ENJOY!

Why Have Life Insurance?

Ideally we want to work hard and save diligently during our working lives, such that we can build a nest egg that will be able to provide an income when we stop working (retire). The sooner you can build your nest egg, the sooner you can retire.

Sometimes events that are totally out of our control can throw our plans of course, and one of the biggest events is an illness or injury which affects your ability to earn an income and provide for your family.

To cover the risk of adverse events affecting our ability to earn an income there are the following life insurance covers:

  • Death insurance (to provide for your family in the event of unexpected death)
  • TPD insurance (to provide a lump sum payment in the event you become totally and permanently disabled and cannot return to work in any capacity)
  • Trauma insurance (to provide a lump sum in the event you suffer a certain sickness or injury)
  • Income protection insurance (to provide an ongoing income in the event you cannot work for a period due to illness or injury)

Life insurance provides some cover in the event that your financial plans are derailed due to sickness or injury.

How Much Life Insurance Do I Need?

Your financial commitments tend to follow your life circumstances.

CHART: The Life Insurance – Life Cyclelife-insurance-life-cycle

Life Insurance eBook - Banner

Calculating Your Life Insurance Cover Amount

There is no hard and fast rule when calculating your life insurance needs.


In November 2013, independent research house Rice Warner crunched the numbers on average amounts of insurance cover for Australian families and came up with the following recommendation:


Here are some factors to consider.

1Income Protection

If you need to work to generate an income, then you need income protection.

Remember you can only cover up to 75% of your current salary with income protection, but this is much better than having nothing at all.

There are also a range of variables in income protection cover from waiting period, to length of payment.


2Trauma Insurance

Based on claim statistic the majority of trauma claims are due to cancer diagnosis.

CHART: Trauma Claims by Type in 2014


* 2014 TAL claims statistics

We know from statistics that the average lifetime cost of cancer to an individual is $100,000.



3TPD Insurance

Calculating an amount TPD is a little harder.

TPD is designed to provide a lump sum if you can no longer work, hence you should picture exactly what this would mean to your financial life.

The amount of TPD should be considered with regard to your income protection cover and trauma cover.


4Life Cover

Calculating an amount of life cover is even harder still.

Life cover will pay a lump sum to your dependents in the event of your untimely death.

What financial position would your family be in if you were no longer providing a regular income?

Funding Your Insurance Cover

There are a range of methods you can use to ensure you have enough insurance and can meet the annual premium costs.

You can consider holding life and TPD insurances via your super fund.

Own occupation TPD, trauma and income protection is best held in your personal name.

It is possible to hold income protection in your super fund, which is certainly a viable option if you cannot afford the premium costs from your household budget.


  • Life insurance can provide some protection against unexpected illness, injury or death.
  • Life insurance needs tend to follow your life cycle of financial commitments.
  • There is no hard and fast rule as to the amount of insurance you should have.
  • Consider your current circumstances and financial goals and get insurance cover to match.

Not all insurance policies are the same. Make sure you read the documentation before you sign on the dotted line.

The Wealth Guy Signature



The information on this blog and website is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision. We recommend you consult a licensed financial adviser in order to assist you with this.


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