How Much Life Insurance Cover Do You Actually Need?
Mortgage, income replacement, childcare costs — a formula for working out your real number.
The standard advice to 'get 10× your income' is a starting point — not a complete answer. Here's a more precise way to work out what you actually need.
The DIME formula
- •Debt: Total outstanding debts: mortgage, car loans, personal loans, HECS-HELP. Your family shouldn't inherit these.
- •Income replacement: Annual income × number of years until your youngest child is financially independent (usually 18–22).
- •Mortgage: (Already in Debt above — just highlighting its importance. It's usually the biggest single item.)
- •Education: If you want to fund private schooling or university for your children, add an estimate here.
Then subtract what you already have
- •Life cover already held (check your super fund's default cover — often $200k–$400k)
- •Partner's income capacity
- •Assets that could be liquidated (investments, second property)
A worked example
35-year-old, $120k/year income, $600k mortgage, two young children:
Mortgage $600k + income replacement ($120k × 15 years) = $600k + $1.8M = $2.4M. Minus super default cover $300k = need approximately $2.1M in cover.
At a stepped premium for a non-smoking 35-year-old, $2M cover costs approximately $70–$100/month. Many people dramatically underestimate how much they need.
Review regularly
Your insurance needs change. Reassess after: buying a home, having a child, a significant income increase, paying off the mortgage, or children becoming independent. Most people are overinsured in retirement and underinsured in their 30s.
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