Conversely, as you get older you generally carry lower levels of debt and kids are older so the required lump sums can be decreased.
Combining these three amounts will give you a good indication as to the amount of life cover you need. You need to remember that this amount needs to 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.
So as you can see, calculating the correct level of insurance cover 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.
Unfortunately, there is no right or wrong answer. There are a lot of factors that need to be considered. One factor is age. Another is the persons level of debt. Do you have any children and are you planning on more? Are you intending to send your kids to private schools. Did you intend to help you children purchase their first homes. Or are you going to be funding a wedding? Would you like your existing partner to have to sell assets if you weren't around?
The best way to calculate how much insurance cover you need, break it down in to three components.
The Australian Superannuation System has legislated that employer superannuation funds are required to offer members a certain amount of life and total and permanent disability insurance cover when they sign up with their employers fund. This insurance is usually automatically accepted, regardless of your age, health or previous medical conditions. The amount of cover is usually based on the superannuants age and / or income.
As human beings, we don't like to consider our own mortality. But it's important to consider what would happen if the family's main bread winner passed away, suffered a traumatic illness or was permanently unable to return to work due to sickness or injury. Do you know how much money you would need to maintain your lifestyle if you weren't around?
3. A lump sum to provide children or your favorite charity, with a payment should you so desire.
Combining these three amounts should provide us with a good indication as to the correct level of life cover required. You need to review this amount annually. If you have increased your levels of debt or have recently had an addition to the family, the amount insured also needs to be reviewed.
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.
Basically, if you have debt, children or both, you need to have your level of insurance cover reviewed by an expert insurance broker or financial planner.
Combining these three amounts will give you a good indication as to the amount of life cover you need. You need to remember that this amount needs to 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.
So as you can see, calculating the correct level of insurance cover 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.
Unfortunately, there is no right or wrong answer. There are a lot of factors that need to be considered. One factor is age. Another is the persons level of debt. Do you have any children and are you planning on more? Are you intending to send your kids to private schools. Did you intend to help you children purchase their first homes. Or are you going to be funding a wedding? Would you like your existing partner to have to sell assets if you weren't around?
The best way to calculate how much insurance cover you need, break it down in to three components.
The Australian Superannuation System has legislated that employer superannuation funds are required to offer members a certain amount of life and total and permanent disability insurance cover when they sign up with their employers fund. This insurance is usually automatically accepted, regardless of your age, health or previous medical conditions. The amount of cover is usually based on the superannuants age and / or income.
As human beings, we don't like to consider our own mortality. But it's important to consider what would happen if the family's main bread winner passed away, suffered a traumatic illness or was permanently unable to return to work due to sickness or injury. Do you know how much money you would need to maintain your lifestyle if you weren't around?
3. A lump sum to provide children or your favorite charity, with a payment should you so desire.
Combining these three amounts should provide us with a good indication as to the correct level of life cover required. You need to review this amount annually. If you have increased your levels of debt or have recently had an addition to the family, the amount insured also needs to be reviewed.
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.
Basically, if you have debt, children or both, you need to have your level of insurance cover reviewed by an expert insurance broker or financial planner.
About the Author:
John Tutt is a Financial Adviser in Sydney Australia. He is a member of the Financial Planners Association and a Certified Financial Planner. He is passionate about creating and protecting wealth for his clients. Financial Adviser Sydney
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