How Much Life Insurance Do I Need? A Simple Guide

“How much life insurance do I need?” is one of the most common questions we hear — and one of the hardest to answer with a single number. Everyone’s situation is different. But there’s a practical way to work it out without needing a financial degree.

Let’s walk through it step by step.

The quick rule of thumb: 10 times your income

If you want a fast answer, the most common guideline is to get cover worth 10 times your annual pre-tax income. Earning $90,000? Aim for roughly $900,000 in cover.

It’s a reasonable starting point and it’s better than guessing. But it’s also a blunt instrument. It doesn’t account for your mortgage, your partner’s income, how many kids you have, or what stage of life you’re in.

If you want a number that actually fits your family, it’s worth spending 15 minutes on the maths.

A better approach: work out what your family would need

The idea is simple. If you weren’t around, what would your family need financially — and for how long?

Step 1: Add up the big costs

Start with the things your family would need money for:

Mortgage or rent. What’s left on your home loan? Or how many years of rent would your partner need covered? This is usually the single biggest number.
Living expenses. Think groceries, utilities, transport, medical costs, insurance premiums — the day-to-day cost of running a household. Multiply your monthly expenses by the number of years your kids would be dependent (a common choice is until your youngest turns 18 or finishes uni).
Childcare and education. If your partner would need to work more to cover the gap, childcare costs go up. Factor in school fees if you’re planning private education.
Debts. Car loans, personal loans, credit cards, HECS-HELP — anything that would still need to be paid.
Final expenses. Funeral costs in Australia typically range from $4,000 to $15,000.

Step 2: Subtract what you already have

Now reduce that total by:

Your partner’s income over the same period (be realistic — they might need to reduce hours, especially with young kids)
Existing savings and investments
Insurance you already have through super (check your most recent super statement — most funds include some default life cover)
Any other assets that could be used (investment properties, shares, etc.)

Step 3: The gap is your cover amount

The difference between what your family would need and what they’d already have is roughly how much life insurance you should hold.

For most Australian families with a mortgage and young children, this number tends to land somewhere between $500,000 and $1.5 million. That might sound like a lot, but term life insurance for a healthy 30-something is often surprisingly affordable — sometimes less than $50 a month.

Factors that change the number

Your ideal cover amount isn’t fixed. It depends on your specific circumstances and it will shift over time.

Your mortgage balance. This is usually the biggest factor. As you pay down your home loan over the years, you may need less cover.

Number and ages of your kids. More kids means more years of expenses. A newborn needs 18+ years of support. A teenager might only need a few more years.

Your partner’s earning capacity. If your partner works full-time and earns a good income, the gap is smaller. If they’re a stay-at-home parent or work part-time, the gap is larger.

Your lifestyle and location. Living costs vary across Australia. A family in Sydney needs more cover than one in a regional town.

Whether you have other insurance. Income protection, TPD, and trauma cover work alongside life insurance. Strong income protection may reduce your life insurance needs slightly.

Don’t forget income protection

Life insurance covers the worst-case scenario. But the most likely risk for a working parent isn’t death — it’s being unable to work for months due to illness or injury.

Income protection insurance replaces up to 75% of your salary while you recover. For many families, it’s the more practical policy to have alongside life insurance. If your income stopped tomorrow, how long could your family manage on savings alone? For most people, the answer is uncomfortably short.

Review your cover regularly

Your life insurance needs aren’t set and forget. Major life events should trigger a review:

Having another child
Buying a home or upgrading your mortgage
Changing jobs or getting a pay rise
Your partner returning to work (or leaving work)
Paying off a major debt

A good rule of thumb is to review your cover every two to three years, or whenever something significant changes. As your kids grow up and your mortgage shrinks, you may be able to reduce your cover — and your premiums.

Getting the right cover without the hassle

Working out your number is the hardest part. Once you know roughly how much cover you need, comparing policies across multiple insurers is the next step. A comparison service can show you options side by side in minutes — look for clear terms, a strong claims record, and premiums that fit your budget.

The perfect amount of cover doesn’t exist. But the right amount — enough to keep your family safe without overpaying — is absolutely achievable.