Many people know they need life insurance, but they don’t take the next step because they’re not sure where to start. Here’s what you need to know.

1. If you have dependants — consider life insurance

The primary purpose of life insurance is to protect the financial security of your family if you were to die, become terminally ill or permanently disabled – and therefore no longer able to earn an income to provide for them.

So if you have children or other loved ones who depend on you financially, you should consider life insurance. That way, you can help ensure they can keep the lifestyle they would have if you were still earning an income.

2. Working out how much you need

If you want to work out how much life insurance you may need, one way to start is by multiplying 60% of your annual income by the number of years until you would retire. Then subtract the tax you’d pay, and what it costs your family to have you around – giving you a guide to how much cover you’ll need. Use our online Insurance Calculator  to get an instant estimate.

3. Some Life Insurance is better than none

If you think you can’t afford as much insurance as you’d like, start by buying cover that equals any outstanding debts you have (such as your mortgage and car repayments) plus five years of your annual salary.

If you’re currently in-between work or a stay-at-home parent, work out how much you need by using the full-time adult average weekly total earnings (before tax), currently $1,628.10 or $84,661.20 each year.[1]

4. Life Insurance is less expensive than you think

On the topic of cost, life insurance is probably cheaper than you think. In fact, many people can get term life insurance – cover that will pay out a benefit if you die within a specified term – from a reputable company for a surprisingly low price. For instance, a healthy 30-year-old man could pay as little as $31 a month for $750,000 of cover, while a healthy woman of the same age could get cover for around $22 a month[2].

Remember, life insurance does get more expensive as you get older especially if health loadings are applied to your policy. So, it may make sense to buy as much as you may need while you’re young and healthy.

5. Life Insurance is a smart financial move

When you’re looking for cover, you can expect to pay about 1% of your annual salary on the annual cost of term life insurance. If you think about it, 1% of your income to protect years of income can be considered a pretty good deal.

6. You may not have enough Life Insurance through your super

Many people assume they have more life insurance cover in their super than they really do. So make sure you check exactly how much cover your superannuation provides, then make up any gaps by topping up your cover or buying additional life insurance elsewhere.

7. Your Life Insurance needs change over time

As your life changes – you have a child, change jobs, move, or get a pay rise at work – your life insurance needs do too. So, it’s wise to review your protection every year when it’s time to renew your policy.

8. You may be able to choose from stepped or level premiums

As you get older, the cost of your premiums is likely to rise, because you’re more likely to make a claim. Premiums that start off cheaper and rise as you get older are known as ‘stepped’ premiums.

If you’d prefer more certainty about the cost of your premiums each year, you might be able to choose ‘level’ premiums. These premiums generally start off more expensive then stepped ones, but the cost doesn’t change because of your age. However, they may be adjusted due to inflation and other fees, so the price could still increase from year to year. If you are considering your insurance needs over the long term then it is worth considering level premium options.

9. The financial strength and reputation of the company you buy it from matters

When choosing a life insurance company, it’s vital to consider the financial strength and reputation of the company. Ask around and do some research before you buy, so that you buy insurance with a company that you trust.

10. There’s no substitute for good advice

The more you know about life insurance basics, the more control you have over deciding what’s right for you. To get the right answers, talk to a financial adviser – or at least do your own research online. Whatever way works best for you, remember that protecting your family with the right amount of life insurance cover is a key part of your lifetime financial plan.



[1] ABS 6302.0 – Average weekly earnings, Australia, November 2017

[2] IRESS XPLAN 29 May 2018