Life insurance needs by circumstance
It’s important to factor in your current lifestyle when setting a cover amount. Here are some of the things you should consider depending on your living situation or family makeup:
Even if you haven’t followed the path of a spouse and kids, there’s still one person you need to look out for. On top of your everyday living expenses, you might want to prepare for how a terminal illness could force you into unexpected financial obligations. That means your cover amount should include the potential cost of palliative care, which can help you live comfortably and pain-free if you are ill. While Medicare will cover some of these costs, care centers can charge up to $120 a month (out-of-pocket) for basic services⁴. This can be hard to afford if you’re already ill and don’t have an ongoing income.
Although the cost of living will vary depending on location and state, you can work out an estimated cost by using the Australian average. The median weekly spend for Australian singles is between $400 and $600⁵.
If you don’t have kids at home, you may be tempted to retire sooner or even treat yourself to a well-deserved lifestyle. However, this could leave your spouse with a lot of financial commitments if you suddenly passed away, especially if they have already begun to transition into retirement.
An unexpected death leads to your total household income being halved, so keep this in mind when planning for the future. Australian couples without children spend an average of $1,572 per week on basic living expenses². While your partner can reduce this amount if they were living alone, they may be locked into other long-term commitments such as a mortgage or other loan amounts.
Family with children
Your cover amount should factor in both the ongoing living expenses of your dependant children, as well as any long-term plans you may want for them (such as a helping hand in moving out). Australian families with children over 5 have an average weekly spend of $1,990 – $2,085². This works out to be around $7,000 a month, but this amount would be slightly lower if you were no longer around. You’ll need to consider how long it will take for your family to make any necessary adjustments or get back to financial sufficiency after you pass away.
Education fees (including TAFE or university), the mortgage, and week-to-week living costs should be covered long enough for your children to become financially independent. Even if you’re not the main provider, your partner may need to become a full-time homemaker if you were to pass away, which can bring on added costs that need to be considered.
Seniors or retirees
You may not have any large ongoing expenses, but if you’ve made extensive plans for yourself or your partner in retirement, these could potentially be jeopardized if you passed away. The Living Cost Indexes show that living expenses for aged pensioners have risen by over 23% since 2009⁶. It’s now estimated that a modest retirement for one person can cost at least $28,165 a year³. However, the Age Pension only provides around $644 a fortnight or $16,744 annually⁷, which leaves a significant gap.
For self-funded retirees, the cost of living has risen by 22.8% since 2009. That means a comfortable and active retirement for your spouse could cost at least $44, 146 a year. Your cover amount should not only factor in these long-term expenses, but also any immediate costs that your partner would face without you – such as relocation/downsizing or planning your funeral.
Choosing the right life insurance product
Before taking out cover, you should consider the different types of life insurance available to you. Each of these are designed to meet different financial needs and usually have specific exclusions that you need to be aware of.
In Australia, there are different types of life insurance. Some include:
- Term life insurance: covers you for a set number of years or until you reach a certain age (whichever comes first). This type of policy may expire after 10 to 20 years so it’s important to take out cover for when you are going to need it most. Find out more about Seniors Term Life Insurance.
- All of life insurance: this type of policy covers you for as long as you live or make a full payment claim (or until you decide to cancel). An All of life insurance product may have a strict application process. You may need to answer a significant number of health and lifestyle questions or undergo a medical exam before being approved.
- Group life insurance: this is a type of policy that you receive through your employer or superannuation fund. Keep in mind that group life insurance is not tailored to your specific needs or budget as your employer/super fund simply purchases a single contract which covers several people, being the funds members. This cover may expire when you reach a certain age or retire. The upside is that contributions you make to your group life insurance premiums may be funded by your superannuation fund, which could include pre-tax contributions. This can help you keep up with the long-term cost of your policy, however, it’s important to know that your beneficiaries may also be taxed on any payout they receive in some cases. You should seek guidance from a tax advisor to ensure your circumstances are taken into account.