How much life insurance do I need? Five illustrative scenarios

We’re Maciej Stanek and Imran Amjad, the financial advisers at Véurr Financial Planning. How much life insurance a household needs has no single right amount. Moneysmart, ASIC’s consumer website, frames it as a gap: what the family would need for debts and living costs, less what it would already receive from super, savings, investments, paid leave and family. The five scenarios below show how differently that gap can land, and the questions an adviser works through in each. None of the people in them is a real client.

What goes into the number

For a dollar estimate of life cover alone, Moneysmart’s life insurance calculator works one out from the figures you enter. It leaves out TPD, trauma and income protection, and it does not consider eligibility for cover, affordability, or tax on the benefit.

An adviser builds the figure from the same pieces, each with a catch:

• Debts to clear. The mortgage and other debts, cleared once. If life cover is packaged with TPD or trauma, a payment under one of those can reduce the life cover.
• Years of support. A year of household spending multiplied by the years the family would want covered. For children, that can run past school if university is in view.
• What’s already there. Default cover inside super, any older policy, the super balance itself, savings, and a partner’s income.
• What a benefit is worth after tax. Moneysmart (July 2026) notes that a TPD payout from cover held in super may be taxed if the person is under 60, so it may not match the cover they think they have.
• The other covers answer different questions. Total and permanent disability (TPD) cover pays a lump sum only if the policy’s definition of permanent disability is met. Income protection pays monthly after a waiting period, for a set benefit period, if the policy’s definition of disability is met; definitions and exclusions vary. Trauma cover pays a lump sum on specified conditions and does not cover mental health conditions.

How the four covers fit together is set out on our page on income protection and life insurance advice in Canberra.

Scenario 1: an APS officer relying on the default cover in super

Illustrative example · not a real client · not personal advice

Assumptions: one full-time and one part-time income; two children in primary school; a mortgage; super in an accumulation account (not a defined benefit scheme) with the default cover it came with; no cover held outside super.

In this example, a hypothetical 38-year-old APS 6 policy officer notices the insurance premiums on their annual super statement and can’t say what the cover would pay, or when it would stop.

Questions worth asking:

• What cover is in the account, how much, at what cost, and until when? (Moneysmart explains how to check the insurance in your super.)
• How many years of household spending would the family want covered, and would that run past school?
• How much of the gap would the part-time income, super and savings already fill?
• If income protection is attached, how does its waiting period compare with the sick leave they have built up?
• Is the existing cover already close enough that the answer is to change nothing?

What an adviser would look at: if someone in this position sat down with an adviser, the adviser would, with their written authority, get the cover details from the fund and read its Product Disclosure Statement for the definitions, exclusions and when cover stops. Life, TPD and income protection would each be set against the household’s gap separately, because each answers a different question.

Worth knowing:

• Moneysmart (September 2026) says most super funds automatically give members aged 25 or over (for new members, once the balance reaches $6,000) life and TPD cover for a set amount, usually without medical checks, and that it may be lower than cover available outside super.
• Premiums inside super may be lower, because super funds buy cover in bulk (Moneysmart, September 2026).
• Own-occupation TPD (the test is whether the person could work again in their own job) costs more and is usually only available outside super (Moneysmart, July 2026).
• A second super account may mean paying for a second policy, and the full benefit may not be claimable from both.

What they might explore next: whether each type of cover leaves a gap large enough to matter. Two officers on the same classification can need very different things.

Scenario 2: one income, one partner at home

Illustrative example · not a real client · not personal advice

Assumptions: one partner earns the household income; the other has stepped back from paid work to care for a toddler and a new baby; a mortgage; the earning partner has default cover in super only; the partner at home has an older super account that has received nothing since they stopped work.

In this example, a hypothetical couple in their mid-30s has just had a second child; one partner works full-time and the other is at home.

Questions worth asking:

• If the earning partner died, how many years of household spending would the family want covered, beyond clearing the debts?
• If the partner at home died or became seriously ill, what would replacing their care cost, and for how long?
• With no earnings in the past year, what would an income protection policy measure a benefit against?
• How does a TPD definition apply to someone not currently in paid work? (See how TPD definitions work at claim time.)
• If the partner at home returns to paid work in a few years, how much shorter would the support period be?

What an adviser would look at: if this couple sat down with an adviser, the adviser would map both partners’ cover from every source and check whether a beneficiary nomination is in place and whether it binds the trustee. Where no beneficiary is named, the estate or the super trustee decides where the money goes, and Moneysmart (July 2026) notes that missing nominations lengthen the average time to finalise a claim.

Worth knowing:

• By law, super funds cancel insurance on accounts with no contributions for at least 16 months, and the fund contacts the member before the cover ends (Moneysmart, September 2026).
• Moneysmart (September 2026) says income protection usually bases the benefit on earnings in the 12 months before the illness or injury, and that some policies only cover people working a minimum number of hours a week. In Maciej’s experience as an adviser, less cover is generally offered once someone has stopped paid work, and income protection is generally not available during a pregnancy: an application usually waits until after the birth and a return to paid work.
• Super funds no longer offer new trauma policies (Moneysmart, September 2026).

What they might explore next: whether cover for the partner at home is worth its cost and, if it is, which type answers the risk they are worried about.

Scenario 3: cover arranged in their thirties and not revisited

Illustrative example · not a real client · not personal advice

Assumptions: one private-sector professional income, much higher than when the cover was arranged; the mortgage mostly repaid; two children finishing school or at university; life, TPD and income protection held outside super, arranged about 15 years ago, with the income protection policy starting before October 2021; a health condition diagnosed since the cover began.

In this example, a hypothetical 51-year-old senior engineer at a consulting firm opens a renewal notice showing another premium increase.

Questions worth asking:

• The life cover was sized when the mortgage was large and the children young. How big is the gap now?
• How does the income protection benefit, set against their income back then, compare with what they earn today?
• The income protection policy predates October 2021. What terms could change if it were replaced or altered? (More on keeping an income protection policy written before October 2021.)
• How might the health condition affect terms on any new or increased cover?
• Would a shorter benefit period suit the years left to retirement, and what would it give up?
• If cover is reduced now, what would it take to increase it later?

What an adviser would look at: if someone in this position sat down with an adviser, the adviser would read each policy schedule and its terms (definitions, indexation, options held and premium structure), compare today’s gap with the gap when the cover was set, and identify any terms that changing a policy would lose.

Worth knowing:

• Premiums generally rise with age and may change each year (Moneysmart, July 2026).
• For new income protection policies issued from 1 October 2021, APRA expects benefits not to exceed 90% of earnings at claim for the first six months, and 70% after that (APRA letter, 29 September 2020).
• Insurers usually ask about medical and family history, and leaving out important details can lead them to change or cancel cover or refuse a claim (Moneysmart, September 2026).

What they might explore next: which parts of the cover still match the household, and what changing any of them would give up.

Scenario 4: self-employed, with income that varies

Illustrative example · not a real client · not personal advice

Assumptions: working as a sole trader for two years after leaving an employed role; income that varies from year to year; a partner employed full-time; one child in primary school; a mortgage; irregular super contributions since becoming self-employed; no cover outside super.

In this example, a hypothetical 42-year-old self-employed physiotherapist gets a letter from their super fund: the account hasn’t received contributions for some time, and its insurance may be cancelled.

Questions worth asking:

• Does the cover in the super account still matter to the household, and if so, what does the fund need to keep it?
• If an injury stopped hands-on work, would the TPD definition look at their own occupation or any occupation?
• How would an insurer measure an income that moves from year to year?
• How long could the household run on savings and the partner’s income, and would that make a longer waiting period workable?
• Once the partner’s income and super are counted, how big is the life-cover gap?

What an adviser would look at: if someone in this position sat down with an adviser, the adviser would start with the fund’s letter, then look at several years of income records, how the occupation is classified and which definitions are offered for it. They would also weigh up cover outside super: Moneysmart (September 2026) says it might allow a higher amount of cover and more features, but the premiums come from the person’s own pocket, and insurers usually ask about health and occupation before deciding whether to offer cover and on what terms. If the cover in super lapses before a decision is made, that assessment decides what could replace it; in Maciej’s experience as an adviser, not every insurer offers its most comprehensive cover for a hands-on occupation such as physiotherapy. Insurance for the practice itself is outside this article.

Worth knowing:

• To keep cover on an account that is about to lapse, Moneysmart (September 2026) says to tell the fund or add money to the account.
• For new income protection policies from 1 October 2021, APRA expects a variable income to be measured as average earnings over a period appropriate to the occupation (APRA letter, 29 September 2020).
• Moneysmart (September 2026) says most income protection policies offer a waiting period between 14 days and two years; the person must still be unable to work at its end to be paid.

What they might explore next: whether the cover in the super account is worth keeping, and how their variable income would be measured.

Scenario 5: taking a redundancy in the late fifties

Illustrative example · not a real client · not personal advice

Assumptions: super in an accumulation account (not a defined benefit scheme) holding default life, TPD and income protection cover; no cover outside super; the mortgage repaid; adult children who have left home; a partner still working for a few more years; no new job lined up.

In this example, a hypothetical 57-year-old APS Executive Level 1 (EL1) officer has been offered a voluntary redundancy and has a few weeks to decide.

Questions worth asking:

• Who still depends on this income? If no one does, is life cover still wanted, or has the question become what it costs?
• Once employer contributions stop, how long before the fund could cancel the cover?
• Without a job, would the income protection still be relevant, and what does its definition of disability require?
• If the cover were dropped and wanted again later, could it be replaced on similar terms?
• Would the partner want any cover kept in place?

What an adviser would look at: if someone in this position sat down with an adviser, the adviser would, with their written authority, confirm what the fund holds and when each cover ends, check when the last employer contribution was made, and set the household’s remaining gap against the cost of keeping each cover. They would also look at how long cover lasts outside super, where Moneysmart (September 2026) says life cover may continue for as long as the premiums are paid, although TPD cover still usually ends at age 65. In Maciej’s experience as an adviser, cover held outside super may not be claimable in every situation; for someone with a health condition, the question is whether cover could be obtained again once it was cancelled, for example on returning to paid work or if the condition flares up. The premiums come from their own pocket, not their super balance (Moneysmart, September 2026).

Worth knowing:

• Moneysmart (July 2026): “If you don’t have people who depend on you financially, you may not need life cover.”
• Moneysmart (September 2026): “By law, super funds cancel insurance on accounts with no contributions for at least 16 months.”
• Premiums reduce the super balance, which Moneysmart says can matter more close to retirement, with less time for the balance to recover.
• Moneysmart (September 2026) suggests checking insurance before closing an account or changing funds: over 60, or with a pre-existing medical condition, a person may not get the cover they want.

What they might explore next: whether the cover is still needed at all and, if some is, how to keep it through the change.