How much life insurance do people actually take out? The method, not a magic number

Type this question into Google and you’ll be buried in confident answers: neat multiples of salary, tidy rules of thumb, calculators that spit out a number after four questions. It all feels precise. Almost none of it is about you. A single renter and a parent of three with a mortgage can earn identical salaries and have wildly different answers, which tells you everything about salary-multiple shortcuts.

So this article won’t give you a number, and honestly, no article should. What it can give you is the method, the way of thinking that turns “how much life cover?” from a guess into a reasoned answer about your actual life. The arithmetic is yours to do; the framework is below.

What is life cover actually for?

Before any adding up: life cover may pay a lump sum to your beneficiaries if you die (many policies also deal with terminal illness, subject to their terms). Its job is brutally simple, to stop your death from becoming a financial catastrophe on top of a personal one, for the people who relied on you. Every part of the method flows from that job. You’re not insuring your life in some abstract sense. You’re insuring the hole your absence would leave in specific budgets.

The method: obligations minus resources

The way of thinking runs in two columns, then a subtraction.

Column one: what would your death leave behind? Questions worth working through honestly:

1. Debts that wouldn’t die with the household’s ability to pay them. The mortgage is usually the big one. Personal loans, car finance, anything a surviving partner would carry alone.
2. The ongoing gap in the household budget. If your income stopped forever, what would it cost, per year, for your people to keep living something like their current life? And for how many years, until a partner could reasonably adjust, until kids are independent, whatever horizon fits your family.
3. Future obligations you’d want honoured. Education costs are the classic. Anything you’re committed to that your income was going to fund.
4. The immediate costs. Funeral, estate administration, a buffer for the messy first year.

Column two: what’s already there? Savings and investments. Your super balance, and any existing death cover attached to it or held elsewhere, worth checking properly, since many people have some default cover inside super they’ve never counted. A partner’s income and its realistic future. Anything else that genuinely turns into money for the household.

The subtraction: column one minus column two. If the result is around zero or negative, your situation may already be self-insured, and that’s a perfectly good finding. If there’s a gap, that gap is the honest starting point for a conversation about cover, not a purchase order.

Why not just use a salary multiple?

Because the multiple knows one fact about you and pretends it’s enough. It doesn’t know whether you rent or owe, whether you have one dependant or four or none, whether your partner earns, what’s already sitting in super. Two households on the same income can need dramatically different amounts, and a shortcut that ignores everything that differs between them is a coin toss with confident branding, not a method. The obligations-minus-resources approach is slower precisely because it’s about your life.

What’s the catch with the method?

One part surprises people: the answer has a use-by date. The calculation you’d do today reflects today’s mortgage balance, today’s kids’ ages, today’s super. Every year that passes, the columns move, usually in opposite directions, debts shrinking while savings grow. Cover that was reasoned carefully five years ago can quietly drift out of step with the life it was protecting, in either direction. Paying for more cover than your situation now needs is a slow leak; holding less than it needs is the original problem back again. The method is not a one-off ritual; it’s a check worth redoing when life shifts, new mortgage, new child, big income change, or every few years by default. That’s exactly what a cover review is for.

And one honesty note: working through this method yourself is thinking, not personal advice. Turning the gap into an actual cover amount, structure and policy involves your full circumstances, and that’s where a conversation earns its place.

Where to from here

Grab a coffee, open the banking app, and rough out the two columns, even a messy version teaches you more than any calculator. If you’d like a second set of eyes on the thinking, book a no-obligation chat with Justin. He’s walked hundreds of families through exactly this exercise, and if your gap turns out to be zero, he’ll happily tell you to keep your money.

Related reading

• The types of personal insurance
• Insurance in super, explained
• Reviewing your existing cover

General advice only. It does not take into account your objectives, financial situation, or needs. Consider whether it is appropriate for you and read the relevant Product Disclosure Statement (PDS) before deciding. Whether a benefit is payable depends on the specific policy terms.