Category: House & Home
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Sub category: Insure
30 September 2014

How much life insurance do you really need?

It’s worth giving life insurance the same attention we pay to home and contents or car insurance, says ING DIRECT’s Tim Hewson, as it could be the financial lifeline that keeps your family going.

Are you aware how much life insurance cover you have through your superannuation fund? Like all insurances, it’s essential to have the right level of life cover. Too much and you’re wasting money. Have too little cover, and the people who matter most to you could face financial hardship.

Deciding how much cover is right for you

So how do you decide how much you need? Your personal circumstances are the main factor shaping the level of life cover you require.

For example, if you have kids and a mortgage, your life insurance should, at a minimum, be sufficient to pay off your home loan and other debts (remember, your debts don’t die with you). It should also leave a pool of capital to help your family rebuild their future.

As you progress through life, kids become independent and the family home is steadily paid off. So at this stage chances are you might need a lower level of cover.

To put things in perspective, Rice Warner’s Underinsurance Research Report (December 2013) found that the average Australian couple aged 40, with children, requires life insurance worth approximately 10 times annual earnings just to repay debts and maintain current living standards. Having cover of 15 times annual earnings would provide for a better quality lifestyle.

Your life cover could fall short

The same Rice Warner survey found the median level of life cover in Australia is only 42 percent of the sum needed to fully maintain a family’s standard of living. If you’re unsure about your current level of life insurance, start by getting in touch with your superannuation fund and ask how much cover you have in place (and any other insurance providers if you have taken out insurance outside of superannuation). If it falls short, then you could apply to increase your insurance cover to a level you are more comfortable with.

Bear in mind too, life insurance should always reflect your current circumstances. Put some time aside to do an annual financial health check where you can reassess your lifestyle and commitments.

For example, if you upgrade to a better home – and potentially bigger mortgage, or if a new baby comes on board, it could be worth upgrading your insurance cover to reflect this. An insurance calculator can help you work out how much insurance is appropriate for you.

Like all other aspects of your finances, if you’re unsure of how to proceed then consider speaking to a financial adviser for advice relevant to your situation.

The information is current as at publication. Any advice on this website does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. Deposit products, savings products, credit card and home loan products are issued by ING, a business name of ING Bank (Australia) Limited ABN 24 000 893 292, AFSL and Australian Credit Licence 229823. ING Living Super (which is part of the ING Superannuation Fund ABN 13 355 603 448) is issued by Diversa Trustees Limited ABN 49 006 421 638, AFSL 235153 RSE L0000635. The insurance cover offered by ING Living Super is provided by Metlife Insurance Limited ABN 75 004 274 882, AFSL 238096. ING Home and Contents Insurance is issued by Auto & General Insurance Company Limited (AGIC) ABN 42 111 586 353 AFSL Licence No 285571 as insurer. It is distributed by Auto & General Services Pty Ltd (AGS) ABN 61 003 617 909 AFSL 241411 and by ING as an Authorised Representative AR 1247634 of AGS. All applications for credit are subject to ING's credit approval criteria, and fees and charges apply. You should consider the relevant Product Disclosure Statement, Terms and Conditions, Fees and Limits Schedule, Financial Services Guide, Key Facts Sheet and Credit Guide available at ing.com.au when deciding whether to acquire, or to continue to hold, a product. Before interacting with us via our social media platforms, please take a minute to familiarise yourself with our Social Media User Terms https://www.ing.com.au/pdf/Social_Media_User_Terms.pdf.

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