How Much Life Insurance Cover Do You Need? - Juice 107.3

How Much Life Insurance Cover Do You Need?

Here's a sound basis on which to determine the right level of cover in order to protect your family in the event of you passing away.

By Juice 107.3 Network Sunday 20 Jan 2019LifestyleReading Time: 2 minutes

By: Alex Cook

Back in my days as a financial adviser, I soon discovered that the vast majority of people were underinsured, often substantially, leaving their families exposed to considerable hardship in the event that they passed away or became sick and disabled.

In this post I want to explore how much life insurance cover you need in order to adequately protect your family in the event of you passing away, by giving you a sound basis on which to determine the right level of cover.

Let’s look at a real world application of a relatively typical couple – Max & Emma.


Husband (Max – 45) & Wife (Emma – 44) – 3 kids (Ages 9, 7 & 5.
They have a mortgage of $400,000
Max’s income is $140,000. Assume Emma is a stay at home Mum at present.
Cash in the bank – $50,000
Max’s Retirement savings of $70,000
Emma’s Retirement savings of $25,000

Let’s determine what cover they’d need in the event Max died:

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Repay their Debt – $400,000
Funeral – $10,000
Living Expenses – $60,000 p.a. for 13 years (until the 5 year old reaches 18) – therefore capital needed of $780,000. (This assumes no inflation and no investment return on the capital)
Less Cash – $50,000
Less Max’s Retirement Savings of $70,000 (available only on his death)

Debt ($400,000) + Funeral ($10,000) + Living Expenses ($780,000) Less existing Cash ($50,000) & Retirement Savings ($70,000)

= Recommended Cover: $1,070,000

Note: inflation & investment returns excluded in this example. Generally you would assume that an investment return would be made on the capital from the insurance lump sum (meaning you would need less sum insured as it would grow). You would also assume that inflation would have a negative impact on the lump sum (meaning you would require more to allow to allow for the decline in the purchasing power of the lump sum over time).

Important Disclaimer: This article is not intended to be personal financial advice. Before entering into an insurance contract we suggest seeking advice from a licensed financial adviser.

Article supplied with thanks to Wealth with Purpose.

About the Author: Alex Cook is a financial planning expert and has advised individuals and businesses on how to manage their finances for over 19 years. He recently sold his successful financial planning business to pursue his passion of helping people like you to take control of their finances and future.