How Much Life Insurance Do I Actually Need

I watch couples have the same conversation every time someone gets pregnant. They know they need life insurance, so they throw out numbers that sound reasonable.

“Maybe half a million? A million sounds like a lot.”

They’re doing it completely backwards. After six years in life insurance and working with roughly three hundred clients, I’ve seen this pattern destroy families financially.

The problem isn’t that people don’t want adequate coverage. They just don’t know how to calculate what they actually need.

The Real Trigger Moment

Pregnancy changes everything about life insurance calculations. Suddenly you’re looking at one partner taking time off work, increased living expenses, future schooling fees, and childcare costs on top of your existing mortgage.

Young families hit phases where they need significantly more coverage than they realise. The numbers get big fast.

Research shows parents aged 30 need an average of $561,000 in basic life insurance per parent. Most default super fund coverage sits around $420,515.

That gap matters.

My Two-Bucket Method

I split every life insurance calculation into two buckets: immediate needs and future needs.

Immediate needs cover the urgent stuff. Clearing your home mortgage (not investment debt if the asset values cover it). Funeral costs. Emergency buffer of three to six months income.

I also calculate grief time. It’s unreasonable to expect someone to return to work the next day after losing their partner. Sometimes that means six months of extra income sitting in the background. Sometimes a full year.

Future needs get more complex. Education funding if you’re planning private school. Income top-ups for the surviving partner, especially if they need time off to care for family.

Childcare swings these calculations dramatically. With a young family, you’re looking at five to eight years of childcare expenses. That adds up fast.

The Super Factor Everyone Misses

Here’s where most Australians get it wrong. They completely ignore their superannuation balances.

I see clients with $400,000 left on their mortgage take out $500,000 policies. Then I discover they have $250,000 sitting in super with proper nominations to their spouse.

That super balance covers most of their mortgage debt. They really only need $150,000 to $200,000 in additional coverage.

Super becomes a massive swing factor, especially when premiums are expensive. But superannuation typically provides only about 30% of what families actually need for complete protection.

How To Calculate Your Real Number

Put everything down on paper. Open a spreadsheet. When numbers exist on paper instead of in your head, they feel more real.

Add up both buckets: immediate needs plus future needs. Then subtract what you already have: savings accounts, offset accounts, and properly nominated super balances.

The difference is what you actually need to insure.

Figure out what you need first. Then round up from there if premiums are reasonable.

Don’t start with what sounds like a good number. Start with what makes mathematical sense for your situation.

Remember that partners rarely need identical coverage amounts. Different incomes and different home responsibilities create different insurance needs.

Most importantly, make sure whatever you base your calculations on actually makes sense. Because picking a number out of thin air leaves families vulnerable when they can least afford to be.