Yellow Brick Road: Home

5 Ways to Calculate How Much Life Insurance You Need

In this article:

Think it's complicated trying to figure how much life insurance cover is enough? It doesn't have to be.

When faced with jargon terms like stepped premiums and sum insured, it can be tempting to run a mile. You may wonder how it's possible to accurately estimate life insurance coverage if you don't get the ins and outs of what you're buying.

If we take the complicated terminology away, let's look at the simple steps that are involved in working out approximately how much life insurance will adequately support your family if you pass away. 

# 1: Choose your term length.

If you have children or are wanting to start a family, choose a term that is long enough to cover the time your children will remain dependent on you. You might decide this is up until they graduate from high school or even longer, such as until they reach 21 years.

Alternatively, you might prefer to choose a longer life insurance term that covers you for as long as you’re earning a salary – up until retirement.


Both the employed parent and stay-at-home parent should be insured. If the caregiving parent dies, there will be a substantial cost of childcare to cover.

# 2: Work out how much of your expenses are covered by your income.

Add up your annual debts and spending. Take this figure and work out how much of it is covered by your salary and how much is covered by your partner’s salary. As a hypothetical example, if your debts and spending total $82,000 each year, you might decide your salary covers 50% of this – 41,000 each year.  

When you’re collating what you spend, don’t forget to include groceries, utility bills, school fees, subscriptions and memberships, transport and insurance premiums. In other words, any expense you can think of that you pay regularly. Our online budget calculator will help you simplify this process.

Use a similar method to add up your debts, which may include home loan repayments, car loans, personal loans or credit cards.


Include an estimate of your funeral expenses when adding up costs.

Take the first step

# 3: Decide how long your family needs this income.

Speak to your partner about how long the family may need financial help. If you have children, it will be at least as long as they are at school or ready to enter the workforce. Without children to provide for, your partner might need support for a much shorter period.

# 4: Add up your savings and investments

The more saving you have, the greater the financial security of your family. Add up your savings as well as any investments or other insurance policies. If your family is likely to downgrade, rather than stay in the family home, you can include your home as a liquid asset that can be converted to cash.

# 5: Do the calculation

Take the figure from step 2 (how much of your expenses are covered by your income) and multiply this by the number of years from step 3 (how long your family needs this income). Then subtract the figure from step 4 (your savings and investments). The remaining number is a reasonable estimate of how much life insurance you need.

i.e., step (2) x step (3) – step (4) = estimated life insurance cover.

Of course, this is a simplistic representation of all the complexities involved in calculating life insurance, but it is an excellent starting point. Your Yellow Brick Road adviser can help you personalise this calculation and provide professional advice on achieving the right coverage for your budget and circumstance.

**The information on this article contains general information and does not take into account your personal objectives, financial situation or needs. If you require further information don’t hesitate to contact the branch directly.

Feature articles

Must know Property Purchase Journey Professionals List of crucial professional services for any property purchase journey.

Impact of a Potential Interest Rate Rise Tips on what steps existing and prospective borrowers can take in the wake of an anticipated increase in interest rates.

EOFY Tips for Borrowers Easy steps for a smoother tax filing process

All you need to know about LMI While LMI protects the interest of lender, it does offer borrowers the benefit of getting on the property ladder faster. Here's our take on the important aspects of LMI every borrower should be aware of

A Guide to making a property offer Non-negotiable steps no buyer should skip while making a property offer.

View all articles

Enquire now