It’s not something we like to think about, but it’s important to consider what would happen if the family’s main income earner passed away, suffered a critical illness or was permanently unable to work due to sickness or injury.
If you were to add up the cost of all the things your partner or family would need to maintain their lifestyle if you weren’t around, how much would it be?
One of the good things about the Australian Superannuation System is that employer funds are required to offer members a certain amount of insurance cover when they sign up with their employer fund. Often, this insurance is automatically accepted, regardless of your age, health or previous medical conditions. And the amount of cover is often based on your age and / or your income.
The negative aspect of this is that these people generally know they have some cover in their super funds but are unaware of how much it is. And most of the time, it isn’t enough. Which prompts the question; how much life insurance should i have?
The truth is, it depends. Age is one factor. So is your level of debt. And whether you have children. And how many. Would you like them to go to private schools? Are you planning to help them purchase their first house? Would you like your existing partner to have to sell investment assets in you weren’t around?
So as you can see, calculating the amount of cover required is more complicated than using your age or a multiple of your salary as a guide.
When I am calculating life insurance cover, I like to break it down in to three components.
- A lump sum that will eliminate any outstanding debt upon your death.
- A lump sum that will provide your surviving partner and children with an income stream so that they can continue to maintain their standard of living. This would be less than the amount you currently require as any debt repayments will have been eliminated in point 1 above.
- A lump sum to provide children or your favourite charity, with a payment should you so desire.
These three amounts combined give us a good indication as to the amount of life cover required. An important thing to remember is that this amount should be reviewed at least annually. If you have increased your levels of debt or have recently had an addition to the family, the amount insured may need to be increased.
Conversely, as you get older you generally carry lower levels of debt and kids are older so the required lump sums can be decreased.
So if you have any debt, children or both, and the only cover you have is the default amount in your employer super fund, you need to examine your personal insurance situation for the sake of your family.
If you are unsure if you have adequate cover, PLEASE CLICK HERE and you will be directed to short questionnaire that will provide you with a guide as to the amount of Life Insurance cover you should have.
Alternatively, fill out your details below and I will be in touch.
Image: dan / FreeDigitalPhotos.net
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