How Much Life Insurance Do You Actually Need?

Moneysmart method + what compliant advice documents must prove

The Needs-Analysis Method (Moneysmart)

Moneysmart's approach: total what your family would need (mortgage and debts to clear, funeral $4,000-$15,000, school fees, ongoing living costs for up to 10 years where relevant) and subtract what they would receive (super balance, savings, investments, existing cover including super defaults, paid-leave balances, family support). The gap is the cover to consider. FSC research finds ~1 million Australians underinsured for death/TPD and 3.4 million for income protection — defaults rarely close the gap for mortgaged families. Try the Moneysmart life insurance calculator, then compare with our inside vs outside calculator.

Rules of thumb refine the conversation: 5-10x salary where full debt coverage is needed; 60% of income times years to retirement less tax and self-consumption; debts plus five years salary as a floor where budgets are tight. Revisit the sum at each renewal — cover should step down as mortgages amortise and children leave, freeing premiums for super catch-ups instead of lapsing into underinsurance later. Stay-at-home parents need cover too — often half the working partner's amount — for childcare and household replacement. None replaces a documented, personalised calculation in your SOA, signed and dated with all assumptions stated.

Super Defaults vs Advised Cover

Group life inside super is cheap and automatic but typically capped, any-occupation, and eroded by stepped premiums deducted from balance. Advised cover outside super offers higher sums (age/income tested, e.g. up to $2.5m at 18-45 with some insurers), own-occupation TPD options, and level-premium choice that can halve lifetime cost if held to 60+. Your adviser should quantify existing super cover first, then recommend top-ups by structure with premium projections to 65 — see our inside vs outside guide and stepped vs level explainer.

Trauma, TPD and Income Protection Alongside Life Cover

Life cover pays on death; the broader safety net needs disability and illness cover sized consistently. TPD lump sums should mirror life-cover debts plus rehabilitation and home-modification buffers — many advisers anchor TPD at 70-100% of life cover for earners, lower for debt-free households. Income protection replaces 75-90% of prior-year earnings to age 65 with waiting periods (30/90 days) matched to sick leave plus emergency savings; trauma pays lump sums on diagnosis (cancer ~50% of claims, heart attack ~15-20%) for treatment gaps Medicare leaves. FSC data shows 3.4 million underinsured for income replacement — the largest gap. Size all four together so premiums stay sustainable: a $1m life plus $500k TPD plus agreed-value IP package often costs less than life-only overinsurance that lapses. See our trauma guide and IP vs TPD for definitions that decide claims.

What Your SOA Must Show

Under best-interests duty the cover amount must link to your dependants, debts, income gap and timeframe — not a round $500,000 without working. Expect: needs table with inputs, existing-cover offset, recommended sum per type (life/TPD/IP/trauma), structure rationale, 2-3 quotes compared, stepped vs level modelling, and cash-flow impact. Missing maths, single-quote recommendations or no super-cover audit are the three classic gaps AdviserCheck flags — check your SOA free.

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Frequently Asked Questions

Is 10x salary enough?
Often a starting point for mortgaged families, but test against debts, school fees and living-cost years. High debts or single income usually need more; debt-free near-retirees need less.

Do I need cover without dependants?
Cover debts and funeral at minimum; consider trauma/IP/TPD over life cover where illness or disability is the bigger risk.

Should I just use super cover?
Check amount, definitions and premium drag first. Many top up outside super for definitions and level pricing — get both quotes.

How often should cover be reviewed?
Yearly and at life events (child, mortgage, job change, pay rise). Needs fall as debts amortise and super compounds.