Calculating Life Insurance


What should I consider?

How much money will your family need to maintain their quality of life if you pass away or are diagnosed with a terminal illness?

The lump sum payment from life insurance - up to $1.5 million depending on the policy and your age - can be used to maintain the lifestyle that your family is accustomed to. 

A review of your family's current financial situation and how that might change in the future can help you determine the level of cover that is right for you and your family.

How much life insurance should I take out?

It's important to sit down and do your sums, because although a figure like half a million dollars may sound like a lot of money, if you have an outstanding mortgage and young children, you could easily find that it isn't enough at all. 

The following sets out some key aspects to consider in determining the amount of cover you need but it is not an exhaustive list of matters to consider. If you wish to obtain information that is more particular to your circumstances, you should consider obtaining independent financial advice.

There are two main considerations in calculating the amount of cover your family needs:

  1. Immediate and day-to-day living costs
  2. Long-term and future obligations

Immediate and day-to-day living costs

To work out your family's monthly living costs, you need to factor in things like:

  • Mortgage or rent
  • Credit card payments
  • Groceries
  • Car costs such as petrol, insurance and maintenance
  • Utilities such as electricity, water, gas, phone and internet
  • Childcare
  • Transport costs
  • Travel/holidays
  • School fees and education costs
  • Medical and dental costs
  • Other forms of insurance

You may also have family plans for the future that lie outside of these costs. They could be the need to replace an ageing motor vehicle, painting the house, a son or daughter's wedding, or the necessity for your family to move home.

Your own business relies on you.

Long-term and future obligations

The second consideration in calculating life insurance is the amount of your long-term debts. These include things like:

  • Accommodation upgrades
  • Vehicle upgrades
  • Special events such as weddings

When choosing your life insurance cover amount, you should ensure that it is enough for your family to pay for immediate costs on death such as your funeral and other costs, the day to day costs you have tallied as well as enough to cover for the future obligations that your family will need to pay for as they progress through life – all without your income.

  1. Tally the monthly amount that you would normally allocate to these costs for your family.
  2. Against these costs you can deduct any income your household might receive, such as your partner's wage or income from investments. This will give you a net monthly figure.
  3. From this calculate an annual figure and then multiply that by the number of years you want to cover your family. For example, you might want to cover your family until your youngest child finishes their education. Be sure to also include for the future obligations that your family will need to cover.

Remember yours and family’s immediate and future obligations don't die with you. Having sufficient life insurance cover can leave your family with the ability to start again with a clean slate by clearing immediate debts, continue to live the lifestyle you have worked hard for by managing day to day obligations as well as ensuring that as they grow, their future obligations can also be met.

This is general information only and does not take into account your personal objectives, financial situation or needs. You should consider the relevant PDS available on this website prior to purchasing any product. Choosi offers insurance products from a range of brands but does not compare all products available in the market

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