Life insurance: How much do you really need?

Life insurance is one of those things most people know they should think about… but it can often end up in the “too hard” basket. Between juggling work, bills, family, and about a million other responsibilities, sitting down to work out how much cover you need doesn’t exactly sound like a fun Friday night.

But here’s the thing: life insurance isn’t really about you. It’s about the people who love and rely on you. And figuring out the right amount of cover doesn’t have to be overwhelming; it just takes a bit of reflection on your current life stage, your financial commitments, and what you’d want your family’s future to look like if you weren’t there to provide for them.

So, how do you know how much will be enough? Let’s break it down step by step.

How much life insurance should I have?

There’s no one-size-fits-all answer to this question. Your neighbour might need $1 million in cover, while your colleague might only need half of that, and both could be totally right for their needs.

A common rule of thumb you might see online is to aim for somewhere between 10 and 15 times your annual income. That’s a decent starting point because it ensures your loved ones would have breathing room to replace your salary for a number of years. But in reality, the right figure is far more personal.

Here’s a better way to think about it: if something happened to you tomorrow, what would your family need to stay afloat, not just today, but in the years to come? That’s the number you might want to work towards.

What to consider when calculating how much cover you need

Everyone’s situation looks different, but most people will have three big financial pillars to factor in: debts and loans, ongoing living expenses, and end-of-life costs. Let’s take them one at a time.

Debts and loans

Think about everything you currently owe: your mortgage, personal loans, car finance, and even credit cards. These don’t magically disappear when you pass away. In many cases, your family would be left to shoulder those repayments.

For example, say you’ve got a $600,000 mortgage and $20,000 left on a car loan. If your partner and kids suddenly had to manage those repayments without your income, things could quickly get stressful.

The benefit amount your loved ones receive following a life insurance claim should be enough to wipe those balances clean, giving your family the security of staying in the home you worked so hard for.

Even if you don’t own property yet, smaller debts add up. Student loans, business loans, or personal credit cards should all be included in your calculations.

Living expenses for dependants

Next, think about what it actually costs to run your household each year. Rent or mortgage repayments, groceries, childcare, school fees, medical bills, utilities, transport; it all adds up faster than you think.

If you’ve got kids, this part could be especially important. You might want to calculate cover that would see them through until adulthood, or even factor in university costs. For example, raising a child in Australia can easily reach into the hundreds of thousands of dollars over 18 years. That’s not typically something most families could cover comfortably on one income.

And don’t forget about day-to-day support. If you do a lot of the school pick-ups, cooking, or household management, replacing that unpaid labour often means paying for outside help. It’s worth building that into your estimate.

Funeral and medical costs

It’s not the most comfortable thing to talk about, but funerals in Australia typically cost anywhere from $4,000 to $15,000, depending on the type of service. Add to that any outstanding medical bills, and you can see how quickly the expenses pile up.

Having life insurance that covers these costs means your loved ones won’t be scrambling to come up with money at an already difficult time. It’s a small part of the bigger calculation, but an important one for peace of mind.

Tailoring your life insurance policy to your life stage

Your needs in your 20s look very different from your needs in your 40s or 60s. That’s why life insurance isn’t something you “set and forget” — it should grow and adapt with you.

• Young and single: If you don’t have dependents yet, you may only need to consider a policy to cover debts and funeral costs. Think of it as a safety net for your parents or siblings. Read more about life insurance for young singles.
• Newly partnered or with young kids:. You’ll want to take into consideration any additional debts and about securing your family’s financial future Read more about life insurance for young couples.
• Established family and career: If your kids are older and your debts are reducing, you might want to scale your cover back a little. The focus may shift to making sure your partner can maintain their lifestyle and your children can finish their education without financial stress. Read more about life insurance for maturing families.
• Approaching retirement: By the time you’re nearing retirement, your mortgage may be gone and your kids could be financially independent. You might only need cover to protect your partner’s income or to cover final expenses. Read more about life insurance for seniors.

The key takeaway? Your policy should reflect where you’re at in life right now, not where you were five years ago.

When to review or adjust your life insurance policy

Life changes fast. A policy that felt right when you first signed up might not make sense today. As a general rule, it’s worth reviewing your policy every few years, or whenever you hit a major life milestone.

Some common triggers include:

• Buying a home or investment property
• Getting married or entering a de facto relationship
• Having children (or more children)
• Starting or expanding a business
• Taking on new debts or paying old ones off
• Going through a divorce or separation
• Approaching retirement

Each of these moments can dramatically change your financial picture. By keeping your cover up to date, you ensure your family always has the right level of protection.

Finding the right cover with Choosi

When it comes to life insurance, there’s no magic figure that fits everyone. The right amount of cover really depends on you — your debts, your family, your lifestyle, and the stage of life you’re in. Think of it less like a one-size-fits-all jumper and more like a tailored suit — it should fit you now, with room to adjust as life changes.

Whether you’re paying off a mortgage, raising young kids, or simply wanting peace of mind that your loved ones won’t be left with financial stress, life insurance is about creating a plan that suits your situation. And because your world won’t stay the same forever, neither should your policy.

At Choosi, we know working out “how much is enough” can feel overwhelming, but you don’t have to figure it out alone. We make it easy to compare different policies side-by-side from our Approved Product List and help you find cover that works for your needs and budget.

Start today and compare available life insurance policies with Choosi .