Life Insurance in Australia: How Much Cover Do You Need?

Before we dive in, answer two questions:

Are you single? Yes / No
Do you have kids under 18? Yes / No

Your answers will determine everything that follows.

🛡️ The Three Types of Cover

When Australians talk about “life insurance,” we’re usually bundling three distinct things:

1. Life Insurance (Death Cover)

Paid to your nominated beneficiaries when you die before age 65. Coverage for people over 65 exists but becomes prohibitively expensive — 65 is the threshold because that’s when the aged pension typically kicks in.

2. Income Protection Insurance

Paid to you (not beneficiaries) as a monthly payment or lump sum if you can’t work due to illness or injury. Usually covers you until age 60 — note the 5-year gap before aged pension kicks in.

3. Total and Permanent Disability (TPD)

Paid as a one-off lump sum if you become permanently disabled and can never work again.

📖 How It Works: A Real Scenario

Imagine you’re in a traffic accident and become permanently disabled.

If you have both income protection and TPD:

TPD payout — A lump sum to cover immediate needs:
- Renovating your home for accessibility
- Moving to a suitable property
- Medical treatments and ongoing care
Income protection — Monthly payments (typically 75-85% of your pre-disability salary, taxable) until you turn 60

👤 If You’re Single

You probably don’t need life insurance. There’s no one depending on your income.

💡 You DO need:

✅ Income protection — if you can’t work, you still need money
✅ TPD cover — disability can happen to anyone

👨‍👩‍👧 If You Have Dependents

“If a child, a spouse, a life partner, or a parent depends on you and your income, you need life insurance.” — Suze Orman

If you’re the primary earner and you die unexpectedly, life insurance covers:

🏠 Mortgage — so your family keeps their home
💳 Outstanding debts — credit cards, car loans
💵 Living costs — typically enough for 10 years

What if you have no mortgage or debts?

Ask yourself:

Do you have investments they could live off for 10 years?
How financially independent are your dependents?

If the answers are “yes” and “very,” you might need less (or no) life insurance.

🎯 How Much Coverage Do You Need?

🎯 Rule of thumb: Life insurance cover of 10-12x your annual salary.

This varies based on:

Number of dependents
Size of your mortgage
Other debts
Existing assets

Use this calculator: Moneysmart Life Insurance Calculator

You can hold life insurance inside or outside super — each has pros and cons. Read Moneysmart’s guide for details.

💵 Income Protection Guidelines

Read Moneysmart’s income protection guide.

⚠️ Key tip: When getting quotes, select “cover until age 60” — not just 2 years. Short-term cover is cheaper but leaves you exposed.

⚕️ TPD Guidelines

Read Moneysmart’s TPD guide.

Usually life insurance and TPD are bundled together — you can’t easily get one without the other.

⏰ The Age Factor: When Premiums Stop Making Sense

As you age, life insurance premiums increase dramatically. Around age 50, you’ll hit a tipping point where:

Your probability of surviving past 65 increases
The insurer’s risk (and your premiums) skyrocket
Your debts are hopefully paid down
You have more assets and less need for cover

By then, ideally you’ve built enough savings and investments to cover the gap between when insurance ends and aged pension begins.

🔗 Useful Links

🏁 The Takeaway

Life insurance isn’t one-size-fits-all. Your needs depend on:

👨‍👩‍👧 Who relies on your income
💳 What debts you carry
📈 What assets you’ve built

👤 Single with no dependents? Focus on income protection and TPD.

👨‍👩‍👧 Supporting a family? Get life cover that would keep them afloat for a decade.

Review your coverage every few years as your life circumstances change. And always read the Product Disclosure Statement — the devil’s in the details.

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