Calculate your exact life insurance coverage needs using three proven methods. Includes real Australian examples, calculators, and expert recommendations.
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When Sarah, a 35-year-old Melbourne teacher with two young children, asked me "How much life insurance do I need?", she was really asking: "How do I make sure my family never struggles financially if something happens to me?"
This is the single most important question in life insurance, yet most Australians get it wrong. According to recent industry data, the average Australian is under-insured by approximately $400,000—a shortfall that could devastate families when they're most vulnerable.
The challenge isn't that people don't want adequate coverage. It's that calculating your exact needs feels overwhelming. Should you multiply your income by 10? Add up all your debts? Factor in your children's future university fees? The answer is: it depends on your unique circumstances.
In this guide, you'll learn three proven methods financial advisers use:
Each method takes a different approach, and by the end you'll know exactly which one fits your situation—and how much coverage you actually need. Better yet, you'll understand why that number makes sense, so you can explain it to your spouse or adviser with confidence.
Why Under-Insuring Is Dangerous
Consider these real costs Australian families face when a breadwinner passes away unexpectedly:
Without adequate life insurance, families often face impossible choices: sell the family home, withdraw children from private school, or take on debt just to maintain basic living standards.
Important Disclaimer
This article provides general information only and does not constitute personal financial advice. Life insurance needs vary significantly based on individual circumstances. Before making any insurance decisions, we recommend speaking with a licensed financial adviser who can assess your specific situation. For a free, no-obligation assessment, you can request a personalized quote.
You've probably heard "get 10 times your income in life insurance." That sounds easy. But it fails in the real world.
The 10x rule assumes:
But real people don't fit these assumptions.
A 28-year-old single person earning $75,000 needs maybe $300,000 (not $750,000). A 42-year-old with three kids and a $900k mortgage earning $130,000 needs maybe $2.2 million (not $1.3 million). The rule oversimplifies.
That's why we have three methods that adapt to YOUR situation. They take 2-20 minutes but give you the right answer for your life.
Let's figure out your coverage needs in under 2 minutes.
Multiply your annual income by 5-10:
Your Annual Income: $ _______ × 7.5 = $ _______
(Use 7.5 as a middle estimate)
Examples:
This is your quick starting point—not your final answer, just a ballpark to work from.
Quick gut check. You might need MORE if you:
You might need LESS if you:
That quick number works for average situations. But here's the truth: your family's actual needs are specific to you.
Why? Because life insurance needs to cover:
The 5-10x rule assumes you have typical debts and a typical family. But if you're above or below average in any category, you're either over-insured or under-insured.
So let's do this properly. Pick the method that fits your situation.
If you have 2 minutes: Do the quick calculation at the start of "Method 1." It's not perfect, but it's a starting point.
If you have 20 minutes: Jump to "Method 2: The Detailed Worksheet." It's the most accurate and helps you understand exactly where your coverage need comes from.
If you want the balance: Try "Method 3: The DIME Shortcut." It's easier than Method 2 but more thoughtful than Method 1.
The sweet spot for most people: Method 2 or Method 3. Spend 15-20 minutes, get your actual number, and you're done. That's not a burden—it's one email worth of time to protect your family.
Get a personalized life insurance recommendation based on your actual financial situation—not generic rules of thumb.
Get Free Coverage AnalysisBest for: People with average situations who want a fast answer.
The simplest way to estimate coverage is to think about how many years of your family's income you need to replace.
Your family doesn't need to replace 100% of your income (you won't be eating and driving anymore!). But they do need enough to maintain their lifestyle until kids finish school or they adjust.
Your Annual Income: $ _______
Years your family needs support: _______ (usually 10-20)
↓
Multiply: $ _______ × _______ = $ _______
Rough adjustment (subtract 30% for your personal expenses):
$ _______ × 0.7 = Your Coverage Starting Point
Sarah, age 32, earns $80,000 with two young kids:
Tom, age 28, single, no kids:
This approach is good if:
But be warned: It ignores your mortgage and specific debts, so it's often inaccurate. Most people need to use Method 2 or 3 for a real answer.
Best for: Getting your actual coverage number based on your real finances.
This method asks: "What would my family actually need if I died tomorrow?" Then you add up all the expenses and subtract what you've already saved.
WHAT THEY'D OWE (Debts & Expenses):
| Item | Amount |
|---|---|
| Mortgage balance | $ _______ |
| Car loan(s) | $ _______ |
| Personal loans | $ _______ |
| Credit card debt | $ _______ |
| Funeral and legal costs | $ 15,000 |
| Emergency fund (6 months living) | $ _______ |
| Subtotal A | $ _____ |
WHAT THEY'D NEED (Income Replacement & Goals):
| Item | Calculation |
|---|---|
| Annual family expenses | $ _______ |
| Years needed (usually age now to 18/21) | × _______ years |
| Income Replacement | $ _____ |
| Kids' university (if applicable) | $ _______ |
| Other goals (home deposit help, etc.) | $ _______ |
| Subtotal B | $ _____ |
WHAT THEY HAVE (Your Savings):
| Item | Amount |
|---|---|
| Superannuation | $ _______ |
| Savings and investments | $ _______ |
| Existing life insurance | $ _______ |
| Subtotal C | $ _____ |
(Subtotal A) + (Subtotal B) - (Subtotal C) = YOUR COVERAGE NEEDED
$ _______ + $ _______ - $ _______ = $ _______
If the answer is negative, you're already covered. If it's positive, that's your gap.
Their situation:
Using the worksheet:
| Debts & Expenses | |
|---|---|
| Mortgage | $580,000 |
| Car loan | $18,000 |
| Funeral/legal | $15,000 |
| Emergency fund | $25,000 |
| A. Subtotal | $638,000 |
| Income Replacement & Goals | |
|---|---|
| Family expenses: $60,000/year × 15 years | $900,000 |
| Kids' university (2 × $100k) | $200,000 |
| B. Subtotal | $1,100,000 |
| Existing Assets | |
|---|---|
| Mark's super | $160,000 |
| Jessica's super | $95,000 |
| Savings | $30,000 |
| C. Subtotal | $285,000 |
Calculation: $638,000 + $1,100,000 - $285,000 = $1,453,000
Mark's coverage: $1.5 million
This ensures Jessica can cover debts, maintain lifestyle, and fund the kids' education without selling the house or taking on debt.
Young singles (20s-30s):
Young families (30s-40s):
Pre-retirees (50s-60s):
Best for: Getting a defensible number you can explain to your spouse.
DIME is a memory trick for the four main things life insurance needs to cover:
D: Total debts (non-mortgage) $ _______
I: Annual income × years needed $ _______
M: Mortgage balance $ _______
E: Kids' education costs $ _______
TOTAL $ _______
Minus existing assets $ _______
YOUR COVERAGE $ _______
Note: DIME doesn't explicitly include funeral costs. Add $15,000-20,000 to your final answer to cover that.
Limitation: It's less precise than the full worksheet because it uses rough estimates. But it's still much better than the 10x rule.
Get coverage recommendations from 9+ Australian insurers. Compare prices and features in under 3 minutes.
Compare Life Insurance QuotesLife happens. These are the moments you should recalculate:
Mandatory reviews (do within 3 months):
Regular reviews:
Your situation might be special:
Here's what the worksheet usually produces for different people (use these as sanity checks):
Single, no kids, $70k income:
Young family, $95k income, two kids, $580k mortgage:
Established family, $125k income, one kid left, $200k mortgage:
Pre-retiree, $120k income, grown kids, $100k mortgage, $650k super:
These aren't your exact numbers—they're examples of how the calculation works. The patterns: young families need the most, it declines over time, and pre-retirees often find they don't need much at all.
Mistake 1: Mortgage-only coverage Paying off a house leaves your family homeless if they have no income. Coverage must include 10-15 years of income replacement plus education costs.
Mistake 2: Forgetting future expenses Your 5-year-old will cost a lot more at 15. Include braces, cars, university, and all the big teen/young adult expenses.
Mistake 3: Never reviewing You bought $400k coverage at 30. Now you're 42 with a mortgage and two kids. That $400k is nowhere near enough. Review every 2-3 years.
Mistake 4: Ignoring inflation $1 million in 20 years buys what $550k buys today. Choose policies with indexation (auto-adjust) or manually increase coverage every few years.
Q: How much is too much coverage? If you're 35 with young kids and a big mortgage? $1.5-2M is not too much, it's appropriate. If you're 60 with grown kids and paid-off house? $500k+ is probably too much. Rule of thumb: coverage should pay debts and replace income until retirement.
Q: Should I round up or down? Always round up. The difference between $950k and $1M is usually $5-10/month in premiums. That extra buffer is worth it.
Q: What if I can't afford the coverage I need? Get term life (not whole life—60-80% cheaper). Start with what you can afford now ($500k-750k), then increase in a few years. Something is infinitely better than nothing. Through-super coverage is also cheaper ($1-3/week).
Q: Can I replace my life insurance once I'm older? It gets expensive and risky. Buy it when you're young. If you only have $300k now at age 35 but expect to need $1M when kids are born, lock in the full $1M now while premiums are low. Rates double every 10-15 years.
You have three methods to choose from. Here's how to pick:
Choose Method 1 (Quick Income) if:
Choose Method 2 (Worksheet) if:
Choose Method 3 (DIME) if:
Step 1: Pick your method (2 minutes) Read which method above matches your style.
Step 2: Gather your numbers (10 minutes) Have your bank statements and mortgage documents handy. Write down:
Step 3: Do the calculation (10 minutes) Use the formula/worksheet for your chosen method. Don't overthink it—estimates are fine.
Step 4: What you got vs. what you have (5 minutes)
Step 5: Get a quote (3 minutes) You now have a number. Shop around. Term life insurance is usually 60-80% cheaper than whole life for the same coverage.
The average Australian is under-insured by $400,000. Most people discover this too late. Don't be a statistic. This 30-minute calculation could save your family from financial ruin.
And here's the thing: You'll feel genuinely better once it's done. That's not dramatic—it's the relief of knowing your family is protected.
Once you have your number, get 2-3 quotes. Prices vary wildly:
A 35-year-old getting $1M in coverage? Might be $50-80/month (term). Same person 10 years later? Could be $120-200/month. Lock it in early.
Pro tip: Use an online comparison tool to check multiple insurers at once. It's free and takes 5 minutes. That small effort could save you thousands over 20 years.
Answer 8 quick questions and get a detailed coverage calculation based on your actual financial situation—plus quotes from 9+ Australian insurers. Free calculator • No obligation • 3-minute assessment
Calculate My Coverage NeedsDisclaimer: This article provides general information only and does not take into account your individual circumstances, financial situation, or needs. It is not personal financial advice. Before acting on any information in this article, you should consider seeking advice from a licensed financial adviser. Life insurance needs vary significantly between individuals and families.
For a personalized assessment of your life insurance needs, request a free consultation with one of our licensed advisers. We'll review your specific situation and provide tailored recommendations at no cost or obligation.